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Billy Burrows: Why drawdown advice is essential

Shopping around for the best deal has never been easier, with many websites available to compare prices on consumer goods and services.

But shopping around is not something that happens very often with pensions today.

Before the freedom and choice regime effectively killed off annuities, most people with above average pensions shopped around for the best rates.

Drawdown has now replaced annuities as the option of choice at retirement but few people do their research on the best around, preferring to remain with their current providers. Adding to the problem is the amount of people arranging drawdown without advice. Both these factors have aroused the suspicion of regulators.

Perhaps the biggest barrier to shopping around is the advice gap. There have been attempts to fill the gap with robo-advice but the group who most need a lower cost and simpler process are likely to be those least confident when using automated solutions and most in need of the human touch.

Many of those people do not realise that, in accessing their tax-free cash, they are moving into a new plan and may be better off with a different provider.

With annuities, it is relatively simple to compare pay-outs, with the company paying the highest income the best solution. However, drawdown plans have many moving parts, which makes comparing them difficult.

With drawdown, other factors must be taken into account, including charges, investment and plan options, and service standards.

That said, comparing charges and options for different drawdown plans is not really very helpful. What differentiates a successful plan from a disastrous one is not the starting position but the future position: the value of the pot is determined by the amount of income taken and investment returns.

But just because it is difficult to make comparisons does not mean retirees should not shop around. Number crunching I have done suggests the benefits of arranging a drawdown with competitive costs and suitable investments, compared to high costs and unsuitable investments, are much higher than the benefits of shopping around for the best annuity.

This combined with the fact it is simply too difficult for most people to arrange drawdown properly without advice means the FCA is right to be worried about non-advised solutions.

William Burrows is retirement director at Better Retirement

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