Standard Life says fairer rounding on drawdown would aid customers

Standard Life, which provides a range of pension products including Sipps, says that the new drawdown yield announced this week is good news for drawdown users but there is room for improvement. Alastair Black, head of customer income solutions at Standard Life said: "This week's confirmation of a 3.25 per cent drawdown yield for October income reviews, the fourth consecutive monthly rise, is great news for drawdown users - bringing welcome extra choice and flexibility around retirement income."It means that a 60 year old customer moving into drawdown next month could have a maximum income over 17 per cent higher than if they had started less than a year ago, when the yield was 2 per cent. And this ignores the impact of the 20 per cent limits hike announced in the last Budget.Mr Black says that many retirees simply want a relatively modest, sustainable income - but with flexibility to turn it up if circumstances change. Providing a flexible, but sustainable, income source is now an option many people want.Standard Life recently launched a new drawdown transfer option, giving most drawdown users who transfer their pot to Standard Life the flexibility to trigger an immediate review of the amount of income they can access. However, Standard Life says this isn't a DIY option and good professional advice is still required.{desktop}{/desktop}{mobile}{/mobile}Mr Black added that while the new drawdown yield was welcome there was more to do.He said: "There's still room for improvement. The yields GAD use are out of touch with reality. And the rounding system, which rounds down rather than up, has meant that despite the previous month's gilt yield finishing at 3.24 per cent it took another month before investors could benefit from the higher 3.25 per cent rate."If the people were given the benefit of rounding up, rather than down, they would typically benefit from another 3 per cent or 4 per cent of income each time, which would have a positive impact on their retirement income needs."Standard Life has suggested a number of ways to improve drawdown:1. Base pension drawdown limits on a combination of gilt and corporate bond investments.This could give a 60 year old 15 per cent to 20 per cent more income.2. Round up, not down.A simple move giving consumers the benefit of rounding would typically add another 3 per cent or 4 per cent income.3. Introduce a 3 per cent floor on the yield used to calculate drawdown limits.This would have helped drawdown users throughout 2012, reducing volatility and protecting consumers against market extremes.4. 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.5. 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, says Standard Life.

Standard Life says fairer rounding on drawdown would aid customers

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