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Pensioners "in the dark" over how to protect their pots if markets tumble

November 14, 2018

- More than 150,000 pensioners using invest-and-drawdown have no cash buffer to fall back on if markets drop, Zurich research finds
But even though two thirds of retirees do have sufficient cash to dip into – few would think to use it if stock prices dive

A third (36%) of people keeping their pension invested through retirement could be hit harder by falling markets as they do not have a cash safety-net to fall back on, research from Zurich has found.

More than 156,000* consumers drawing down their pension have not set aside a cash buffer to protect their pot if markets plunge.

And even though two thirds (64%) of retirees are holding cash in reserve, fewer than one in 10 (8%) would think to use it if there was a “significant” drop in the stock market.

Financial advisers typically recommend retirees in drawdown hold a buffer of cash which they can call on in volatile markets.  By taking income from cash held inside their pension, instead of their invested assets, they are not forced to sell investments at lower prices.

This can help to protect them from ‘pound-cost-ravaging’ where, as stock prices drop, retirees are forced to sell more investments to achieve the same level of income, depleting the capital of their pot quicker, and reducing its future growth.

But Zurich’s study of more than 650 people who have moved into invest-and-drawdown since the pension freedom reforms reveal many consumers have no cash set aside, or if they do, would not think to use it.

Alistair Wilson, Zurich’s Head of Retail Platform Strategy, said, "A staggering number of retirees appear to be in the dark over how to protect their pensions if stock markets tumble. Withdrawing the same level of income in a downturn could take a bigger bite out of your pension fund - yet it’s a trap that’s easily avoided. Holding up to two years’ worth of living expenses in cash reduces the need to sell investments when prices are falling, giving you a chance to ride out short-term bumps in the stock market.  Working out how much income to take from your pension can be a challenge, and is a decision ideally made with the help of a financial adviser.”

Almost two thirds (62%) of retirees said they have sufficient cash to pay the bills for two years or more yet almost a quarter (21%) said they would only be able to survive for six months or less. 

Almost half (49%) of people taking an income in drawdown said they would continue withdrawing the same amount from their pot in the event of a market correction.

Just 12% would scale back their withdrawals while a further 15% said they did not know what they would do.

Wilson added:  “Recent volatility in the market could have left retirees unnerved but there are steps they can take to safeguard their pots.  It’s good to regularly check you’re not taking more income than you need and that your pension is well-diversified.  If markets tumble, it pays to be more cautious by scaling back your income, or turning off the taps altogether.  Alternatively, limiting the level of withdrawal to the ‘natural’ income from share dividends or bonds leaves the underlying investment intact, giving it a better chance to regain lost ground when markets recover.”  

Six ways to shield your drawdown savings 

1) Diversify to avoid stretching income
Diversification is essential to protecting your assets in a market crash. As ever, picking a portfolio of non-correlated investments, diversified by geographical region, asset class and sector can help to reduce a portfolio’s overall volatility and create greater stability of returns.

2) Have a safety net
Building up a cash buffer can protect against falling stock markets and means you might not have to reduce their standard of living while the market corrects. Holding two years’ cash means you won’t be forced to sell when prices are falling, thereby locking in losses. Instead of cashing in funds, you can dip into cash reserves, giving their pot a chance to regain lost ground.  

3) Turn off the taps
If you can afford to, scale back their withdrawals or place them on hold until markets have recovered. Alternatively, limit the level of withdrawal to the natural income from share dividends or bonds. This leaves the underlying investments intact, giving them a better chance to recover when markets rise.

4) Invest in multi-assets
Multi-assets as the name suggest invest in different types of assets, from equities to property.  In a downturn, some asset classes may not fall by as much as others, meaning multi-asset funds can help to smooth out the effects of a market crash while offering investors greater level of protection. 

5) Have a number of buckets
Having a medium-term investment bucket and longer-term investment bucket can help to manage the mood swings of the stock market. The cash bucket is fed by the medium bucket, which is in turn fed from the long-term bucket. 

6) Rebalance
Rebalancing can help to maintain the overall risk of a portfolio in line with your needs. Rebalancing won’t necessarily provide a greater investment return, but it is a protection mechanism against creating undue or unanticipated risk.


All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 660 adults whose pension is in drawdown. Fieldwork was undertaken between 3rd - 15th October 2018. 

*The FCA’s September 2018 data bulletin shows 435,769 people have put their pension into drawdown since October 2015.  36% of 435,769 = 156,876

For further information please contact: 
Chis Johnson, Media Relations Manager
Tel: 07812 265 245