Third of retirees relying on drawdown are first-time investors
May 2, 2018
- Almost half a million retirees have put their pension into income drawdown since the pension freedoms
- But Zurich research reveals a third (32%) of adults in drawdown have never invested in the stock market before – with two in five (41%) not getting advice or guidance
- Findings lead to calls for shake-up of pension freedom advice and guidance including introduction of new drawdown MOTs
A third of people using drawdown (32%) to fund their retirement have no investment experience, yet two in five (41%) of these have not received either financial advice or guidance, according to new research from Zurich UK.
Almost half a million (430,000) people are taking advantage of new pension freedoms to draw down their retirement savings, yet the highest proportion have never actively invested in the stock market. Despite being first-time investors, tens of thousands have not sought regulated financial advice or guidance, even though they have an average drawdown pot of £153,000.
The study – the largest of its kind into consumer behaviour in drawdown – warns that a lack of advice and guidance could leave retirees at risk of running out of money in retirement. Poor decisions in drawdown can lead to consumers taking on too much risk, missing investment growth or making unsustainably high withdrawals. Women in particular were more likely to be first-time investors, potentially putting them at greater financial risk (41% vs 29%).
According to Zurich, the ‘first-time investor gap’ is being driven by a lack of consumer understanding of drawdown, with almost half of novice investors who had not received advice saying they thought drawdown would be simple (47%). A further third (29%) claimed they were confident in their investment decisions, despite having no previous experience of actively investing.
Alistair Wilson, Zurich’s Head of Retail Platform Strategy, said: “As double the number of people choose drawdown over annuities, Britons clearly favour the freedom and flexibility, but the issue is that many appear to be underestimating its complexity. In the build-up to retirement, many savers rely on pension firms to make investment decisions on their behalf, meaning that in drawdown there is a danger they could end up picking the wrong investments or taking money out of their pot too quickly. This is putting a worrying number of people at risk of running out of money in retirement.”
“Understanding what can be done to encourage consumers to seek financial advice or guidance is crucial to helping retirees secure a decent, lifelong income. The Government should reconsider the case for introducing mandatory guidance for drawdown, requiring people not getting regulated financial advice to opt either in or out of receiving guidance before accessing their pension. We would also like to see the new Single Financial Guidance Body offer free drawdown MOTs to help consumers not getting advice check they are on track in drawdown. ”
The research also reveals that one in ten (10%) UK adults not getting advice rely on search engines to help them navigate the complexities of drawdown, while one in five (20%) look at newspapers and magazines. Pension firms were the leading source of guidance for a third (35%) of consumers, though 44% of all those in drawdown confessed there is nothing that would prompt them to get advice or guidance.
The findings from Zurich UK follow the FCA’s review last month that found drawdown sales are now twice that of annuity sales. The FCA also revealed some consumers are not fully engaging with the guidance available from pension providers, potentially putting themselves at risk of poorer outcomes.
Notes to editors
The study is based on a YouGov survey of a UK sample of 742 people who have moved into drawdown since the pension freedoms were introduced in April 2015. The survey was carried out between 14th December 2017 and 24th January 2018.
* FCA Data Bulletin (issue 12) shows 345,265 pots moved into income drawdown between October 2015 and October 2017. Assuming the number of people moving into drawdown continued at a similar rate from November 2017 to April 2018, this would equate to a further 86,316 people in drawdown. 345,265 + 86,316 = 431,581
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