The advisory firm says employers should be doing more to educate members of corporate pension schemes and providers should be working on product innovation to facilitate it.
Deloitte says a 30-year-old member of a defined contribution scheme earning £30,000pa could end up with a pension fund of £300,000 and generate a retirement income of about £11,500pa. Using income drawdown to delay buying an annuity for 10 years could produce an average annual income of about £13,500, assuming a retirement age of 68, combined employer and employee contributions of 10 per cent and annual returns of 4.4 per cent.
Deloitte partner Richard Slater says: “Income drawdown is misunderstood, underused and undervalued. It accounts for about 15 per cent of the UK’s £11bn annuity market but its use could become more widespread if providers develop products that generate higher levels of income and protect capital.
“Falling annuity rates caused by increasing longevity and low interest rates are making alternatives ways of generating a retirement income more attractive. About 400,000 people buy an annuity every year and many could increase their retirement income by using income drawdown.
“It will not suit everyone and savers will need to take financial advice, but it allows retirees to live off the income generated from their pension fund and delay buying an annuity to get better value. However, people must remember that there is a risk that annuity rates don’t improve or worsen.
“We see a significant trend towards more flexible retirement planning but providers need to do more to develop products that focus on producing a higher income than annuities but that also protect capital. Companies and providers should do more to educate members of money purchase corporate pensions about using drawdown as a more flexible approach to retirement.”