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Pleas are spurned for guidelines on drawdown yield

Pension experts&#39 calls for guidelines on how to calculate the critical yield for income-drawdown products are being ignored by the PIA.

Life offices use different methods to calculate the critical yield – the amount that investments must grow by to ensure that a client is not worse off than if they had taken an annuity. It takes account of charges, inflation and mortality drag.

But new evidence from M&G reveals that this can lead to differences of up to 50 per cent in critical-yield figures quoted by providers.

IFAs and product providers such as M&G and Carrington Investment Consult ants feel that the PIA must draw up a uniform method of calculation.

But PIA head of press Sarah Modlock says: "What we have at the moment is a framework for advice but to specify would be to dictate advice. It is highly unlikely that we will pin down the critical yield."

M&G conducted research into how two product providers calculate the critical yield for a 52-year-old man taking withdrawals of 50 per cent of the maximum allowed.

According to M&G, provider A came up with a critical yield of less than 6 per cent but provider B&#39s figure was 9.2 per cent for the same client.

Pensions marketing manager John Page says: "The IFA needs to understand the basis of a calculation in order to compare terms. We need regulations to lay down the preferred basis."

Carrington Investment Consultants&#39 Paul Tinslay says: "There needs to be some sort of clarity from the PIA as to how critical yield needs to be undertaken."


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