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Govt has overestimated risk of drawdown, says Skandia

Skandia claims the probability of outliving the flow of income from drawdown products is very low and says fear is standing in the way of fundamental annuity reform.

Its research found that, for a pensioner aged 60 with a fund of £100,000 taking income that matches 80 per cent of an open-market annuity, there is a 0 per cent chance of running out of income before death.

If a pensioner takes 100 per cent of what they would get from an open-market annuity, the chance of running out of income is 34 per cent.

Skandia says this shows that as long as there are effective controls over income levels and regular reviews, drawdown clients are not likely to outlive their income.

Group marketing manager Peter Jordan says: “The Government has stated its concerns about the risk of outliving income but it does not seem to have analysed it in any depth. This fear is getting in the way of having a more fundamental rethink.”

But other providers have hit back at the findings, saying drawdown is too risky for most people.

Britannic Retirement Solutions head of corporate affairs Jim Boyd says: “Drawdown is very high risk and is inappropriate for the vast majority of people. It involves a complex relationship between equities and interest rates. That £250,000 is used as a benchmark for drawdown gives an insight to its level of risk.”


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