24 January 2014
Standard Life reaches £10bn on Drawdown

Standard Life's drawdown customers now have £10bn in assets under administration, indicating the increasing popularity of drawdown and evidence that it is becoming seen as an alternative retirement income source to an annuity.

The news comes on the day that gilt yields have stayed at 3.25% resulting in no change in income limits for drawdown users this month. With income levels stabilising at a higher level there is increased confidence among customers and advisers in this more flexible retirement solution which keeps peoples options open.

The GAD limit, the calculation to determine the amount of income drawdown users can take, will have increased to 120% for all drawdown users by March. This change was introduced over a period of a year by the Government, which will give drawdown users more choice about how and when they take their income.

Alastair Black, head of customer income at Standard Life, said: "Drawdown is rightly becoming more popular in relation to retirement income. When people are told how drawdown works many choose to take this option, knowing they can annuitise their fund at a more appropriate date.

"With the move away from final salary and defined benefit schemes towards defined contribution customers want to take ownership of their own pension pot and have more control. Drawdown is more popular than annuities in countries like America, Canada and Australia, who've had a defined contribution system for longer. I wouldn't be surprised to see the UK go this way as more customers start to understand how drawdown works and see it as an attractive way of accessing their money and funding their retirement."

Standard Life is calling for some simple fixes to help people in drawdown:

  • Base pension drawdown limits on a combination of gilt & corporate bond investments.
    This could give a 60 year old 15% to 20% more income. Our table below* shows the real difference moving to a 50/50 or 25/75 mix of gilts and corporate bonds could make to income limits.
  • Round up, not down.
    A simple move giving consumers the benefit of rounding would typically add another 3% or 4% income. Just round the yields used to calculate pension drawdown rates up to the next 0.25%, not down.
  • Introduce a 3% floor on the yield used to calculate drawdown limits.
    This safety net wouldn't have kicked-in until this year. But it would have helped drawdown users throughout 2012, reducing volatility and protecting consumers against market extremes.
  • Average yields over six months.
    Rather than basing pension drawdown rates on security yields on a single day each month, they could use average yields over six months. This would reduce volatility and make planning easier. Instead of the 23 rate changes we've seen in the last 36 months, there would only have been 15 (or 11, if combined with a new 3% yield floor).
  • Introduce enhanced drawdown rates for impaired lives.
    Introducing special drawdown rates for customers with reduced life expectancy puts annuities and drawdown options on a level playing field - helping to create fairer choice for consumers. Those affected would receive a higher retirement income, reflecting their circumstances and needs.

Income drawdown may not be suitable for everyone. There are a number of factors which should be considered.

An income drawdown arrangement will need to be reviewed on a regular basis to ensure that the pension fund can sustain the level of income that the customer is taking.

As with any investment, the value of the fund can go up or down and may be worth less than is invested.

ENDS

For further information, please contact:

Matthew Pittam
Direct: 0131 245 4961
Mobile: 07515 298 642
Email: matthew_pittam@standardlife.com

Notes to Editors

  • Established in 1825, Standard Life is a leading long term savings and investment company, with around ten million customers worldwide. It is headquartered in Edinburgh and employs 8,500 people internationally.
  • Standard Life offers a range of individual and group pensions, SIPPs, ISAs, annuities, life assurance, offshore bonds, investment management, wealth management, tax planning and estate management services. By understanding and offering innovative products to meet its customers' needs, Standard Life helps people with their financial planning, so they can feel more confident about the future.
  • The Standard Life group includes savings and investments businesses, which operate across the UK, Canada, Europe, Asia and Middle East; workplace pensions and benefits businesses in the UK and Canada; Standard Life Investments, a global investment manager, which manages £179bn globally; and its Chinese and Indian Joint Venture businesses. At the end of September 2013 the Group had total assets under administration of over £237bn.
  • Standard Life plc is listed on the London Stock Exchange and has approximately 1.5 million individual shareholders in over 50 countries around the world.
  • Standard Life plc is also listed in the Dow Jones Sustainability Indexes (DJSI World) in recognition of its performance as one of the world's leading sustainability-driven listed companies.
  • You can follow Standard Life press office (@sl_press) on www.twitter.com/sl_press


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