Those retiring with above average sized pension funds are faced with a choice between purchasing an annuity or investing in a pension drawdown plan. For most this decision will probably be one of the most complex personal financial decisions that they will ever make but most people do not have the necessary expertise and experience to be able to make the right decisions. Retirement planning does not have to be so black and white; an annuity or drawdown. In many cases it might be better to consider a combination of annuities and drawdown.

In a recent Pensions Bill debate The House of Lords voted overwhelmingly not change the present rules requiring compulsory annuity purchase by age 75. Likewise, the Lords rejected amendments put forward by the Liberal Democrats proposing an extension to age 85 or to age 80. In a related move, the House of Lords also rejected an earlier amendment put forward by the Conservatives, proposing a temporary suspension to the age 75 rule to help investors caught out by the recent falls in equity prices.

I am speaking on behalf of annuities which I confess to being passionate about but I also believe there is a role for drawdown and variable annuities for the right consumers at the right time. In my view, the critical difference between annuities and drawdown is the impact that annuitisation has on the trade-off between income and death benefits. Higher death benefits result in lower income and vice versa. You cannot magic something out of nothing or magic the risk away. It is interesting to note that drawdown has a similar market share, at around a quarter of the market by value, as in 2001. If we look at the number of cases sold in 2007, I have to point out that the motion looks even more far-fetched. Less than 10 per cent of the half-million annuity and drawdown cases ended up in drawdown. Perhaps as many as half of these are taking drawdown to release tax-free cash while taking no immediate income.

My many years of experience in advising Individual and Corporate clients about annuities and drawdown, advising insurance companies about product development and speaking with government and the regulators leaves me in no doubt that drawdown will continue to replace drawdown as the preferred option for many Middle Britain investors That is providing clients get the correct advice and the industry continues developing innovative new products like variable annuities.