Consumers are being led into income drawdown by ‘unrealistic' critical yields quoted by insurance companies, according to Annuity Direct.
The firm's CEO, Bob Bullivant, says insurers are making inaccurate assumptions when offering these products to consumers.
Currently, the FSA requires drawdown providers to calculate a type A critical yield for the potential customer.
The critical yield is intended to indicate the rate of investment return needed to match a typical annuity rate.
However, Bullivant says many insurers are basing these calculations on their own rates, which may not be market leading, and often fail to take smokers or enhanced annuities into account.
"The problem we have today is that insurers quote critical yields based on their own rates which may not be the best available in the open market," he says.
"Our research shows that insurers cannot change the annuity rate to enable an accurate type A critical yield to be calculated."
He believes many consumers are buying income drawdown when they have idea of the real rate of return they would need to outperform an annuity.
Bullivant says consumers must ensure they speak to an adviser who can calculate a critical yield based on market leading annuity rates, in order to make the most of their retirement income.
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