Income drawdown probably can’t replace pension annuities. The mass market does not have enough money to be able to consider flexible solutions like income drawdown. Having said that, income drawdown has the potential to appeal to a wider audience, particularly with the new products coming in which have really stimulated innovation in the retirement market.
Even for richer customers with bigger pension funds, there comes a point where it makes absolute sense to annuitise, because of the mortality cross-subsidies.
In 2000 about £4 billion went into income drawdown, and there was a 20% drop in the first quarter this year, due to stock market sentiment.
Even if drawdown was allowed as a total replacement for annuitisation, the government might insist on some sort of minimum income to stop people running out of money, and that would be incredibly complex.
Annuities are a cost-effective way of meeting many customer needs, and for that reason we should be much more bullish about the annuity market and it will continue to flourish. It is a good strong product for many people at retirement.
