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June 2, 2011 10:54 am

Drawdown plans set to become more popular

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Income drawdown, traditionally more popular among wealthier individuals, is set to broaden its appeal and become more mainstream, according to the results of a new survey.

Research by Skandia, the investment group, found that the vast majority of financial advisers it surveyed believed that the recent changes to income drawdown rules will result in more people delaying purchasing an annuity, in favour of staying invested.

Under changes which came into effect in April, individuals in income drawdown are no longer compelled to convert their fund into an annuity by the age of 75. Instead they can remain in drawdown indefinitely.

A new investment option, flexible drawdown, was also introduced in April, which allowed investors to take as much income as they like from their funds as long as they could show they had £20,000 in separate, secure pension income.

“Income drawdown has always been popular for those who have sought greater control of their retirement income,” says Adrian Walker, head of retirement planning at Skandia.

“The sweeping changes to drawdown rules takes this one step further, making income drawdown more flexible and more accessible than ever.”

“With the changes in legislation around the flexibility of taking pension benefits beyond age 75 linked to the wider new income drawdown rules, we expect more people will delay their annuity purchase in favour of using income drawdown - and the data from our adviser confidence barometer supports this.”

However, Skandia’s research conceded that income drawdown remained an emerging option for most.

Almost two thirds of the financial advisors surveyed believed that drawdown was appropriate for 10 - 30 per cent of their clients, but the research suggested that this was set to grow, says Skandia.

Skandia surveyed 1700 financial advisers for its quarterly Adviser Confidence Barometer.

Individuals considering using income drawdown are advised to seek independent financial advice on the risks and benefits of keeping pension funds invested.

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