Poor annuity rates are pushing people towards drawdown according to research from Skandia.

A survey of over 600 financial advisers run by the company has discovered that 33 per cent of IFAs believe the most common reason for people choosing income drawdown is because they do not want to give all of their money to a life company via an annuity. 16 per cent said they believe the desire to retain control of the investment strategy is a strong enough reason for clients to choose income drawdown.

When it comes to the amount of income people wish to receive from income drawdown, 32 per cent of people choose to take no income, 20 per cent take the maximum possible income and 48 per cent choose from a range in between, said advisers.

However, advisers said their clients are not solely dependent on income drawdown to fund their retirement, and use ISAs, bonds and savings (49 per cent), annuities (20 per cent), final salary schemes (17 per cent) and buy-to-let property (14 per cent) to top their funds up. Less than ten per cent of people use income drawdown as their only source of retirement income.

"Some people do not like the risk that their hard-earned pension savings will go to a pension provider if they die soon after buying an annuity," said Peter Jordan, head of proposition marketing at Skandia. "Others simply want control over their investment strategy and how they take income and for those people, income drawdown may be an appropriate alternative to an annuity because it provides greater flexibility to enable them to plan for the best outcome."

Jordan acknowledged that there are risks associated with drawdown, and people must understand them.

"The outcome of income drawdown fundamentally depends on the performance of the underlying investments, as well as the level of income taken from the fund, so the investment strategy and level of income taken should be reviewed regularly to ensure it continues to deliver against expectations. However, there are also risks associated with annuities in that people might be locked into a low level of income if they are purchased at the wrong time and they will lose a significant amount of capital if they die soon after taking out the annuity," Jordan said.

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