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Drawdown clients face tough choice

People who set up or increased income from drawdown plans after A-Day may be faced with a difficult choice between cutting income or seeing their pot diminish rapidly.

IFAs at the Money Marketing annuity round table admitted they may have to advise drawdown clients on some difficult decisions due to market falls.

Annuity Direct director Stuart Bayliss commented: “The biggest problem is with those in drawdown who must reduce their income unless they significantly reduce their funds. After A-Day, a very high proportion of them increased their income and they are now very disappointed. Our answer is essentially a negative one – reduce your income.”

Thinc group director of research David Cartwright added that one of the key decisions facing clients confronted with market depreciation will be when to annuitise but he believes good advisers will come into their own. He said: “The tough decision is when to annuitise. You have got the mass affluent, say, with £200,000, taking moderate or slightly more than moderate income. Just as Stuart noted, capital value is down. They are five or six years older, their health may be worse and there may reasons to annuitise.

“With what has happened to the markets, maybe you do not annuitise at the moment but can you underwrite what is going to happen in the next three years yourself? That depends on your other assets.”

Bayliss believes the choice facing those at or near retirement is similar to that put to some Equitable Life policyholders.

He said: “It is not that different from the problems the Equitable guys had, if they were leaving. The answer is you get them to focus on things other than the immediate issues, to set the target FTSE levels and to stick to it. By and large, those that did that feel they have now got back to where they started.”

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