View more on these topics

Critical decisions to be made over income drawdown

Some pension experts are warning of yet another glitch in income drawdown.

The latest doubt is another spin on critical yields. In the past six months, some gurus have warned that high upfront commission could mean critical yields of 14 per cent or higher will be needed to ensure that the client is not worse off than if they had taken an annuity.

That is worrying in itself. But now it emerges that there is no standard for calculating critical yields, raising the threat that IFAs could be unwittingly giving misleading advice.

At present, there is no requirement under disclosure rules for life offices to highlight the critical yield – some major players in the income-drawdown market do not even use the term. All the PIA demands is an effective comparison between the income that a client could have received from an annuity and income under drawdown.

That sounds fine in practice but, and this is the further tricky part, which annuity rate do you choose? If IFAs are offering clients open-market options or the clients are considering a joint or single life annuity, the projected income figure will be very different. Some life offices, such as M&G, are calling on the PIA to come up with a standard definition of critical yield. That would surely be a step forward.

Doubts about the complexities of income drawdown have led to pressure for it to be made a permitted activity. It has been called the next possible misselling scandal. Is this hype? Not really – look at the number of concerns being raised by product providers. To be fair to the PIA, it is reviewing the market but action is needed and now.



Following on from last week&#39s controversial Correspondent&#39s Week article by Money Marketing&#39s hirsute hack Simon English, the Diary is pleased to inform readers that they can indeed find a haircut in Soho for less than £25. After much tramping round the historic streets, we found a barber shop on Mill Street that will shape any […]


Keith Baldwin must be one of the great survivors. Throughout the turbulent history of Allied Dunbar – it began as Hambro Life, was bought out by BAT, joined umbrella group BAFS, became a single marketing group with Threadneedle and recently saw its parent merge with Zurich – many have come and gone. Clever men such […]

Correspondent&#39s Week

“Ethiopia. I&#39m going to Ethiopia. Why?” This was my initial reaction when I was pre sented with a trip to this African paradise. But what could this former war-torn, famine-plagued corner of East Africa have to do with the financial services industry in the UK? Let&#39s get this straight from the start. Ethiopia has nothing […]

The death of retirement – a boost for protection?

According to our recent report on the death of retirement, changes in workplace pension provision mean that coming generations of retirees could have a radically different experience of retirement from their parents. The average contribution rate into an old-style final salary pension was around 20% of total wages, the statutory minimum for a new automatic […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm