Thousands of retirees in drawdown relying on blind luck
April 11, 2019
•Four years since the Pension Freedoms were introduced, analysis reveals that retirees are entering drawdown with no planning
•Just a third (34%) of retirees in drawdown calculated how much income they would be able to generate
Thousands of retirees shifting their pensions into drawdown are not taking basic steps to work out how much they can afford to take from their pot, putting them at risk of draining their savings too soon, according to research for Zurich.
Four years on from the introduction of Pension Freedoms, over 435,0001 people have shifted their pensions into drawdown. However, just a third (34%) of retirees in drawdown calculated how much income they would be able to generate from their pot before retiring.
A third (34%) calculated how much money they would need to cover day to day living expenses and again, just a third (34%) considered how long their money would need to last, be it 20, 30 or 40 years. Even fewer (22%) calculated how much money they would need to fund leisure activities such as going out for dinner, going on holiday.
Worryingly, this lack of planning also encompasses retirees’ investment strategy. Only 16% decided where they would invest their drawdown funds to achieve the desired income and as few as 17% decided which strategy they would use to withdraw income, be that selling units of investment funds or shares or living off the dividends and interest and leaving the underlying investments untouched.
Alistair Wilson, Zurich’s Head of Retail Platform Strategy, said, “Many retirees in drawdown are relying on blind luck to make their savings last throughout retirement. But by taking simple steps to work out how much they can afford to take from their pot, savers can avoid withdrawing too much, too soon. Setting a sustainable level of income in drawdown can be something best done by speaking with a financial adviser, or getting free guidance from Pension Wise.”
It’s not just retirees themselves that this lack of planning will impact; it also has consequences for people who are set to inherit this wealth. Just one in five (19%) retirees in drawdown have ensured that their partner has the financial knowledge and understanding to continue managing their investments and only 15% of retirees have put a financial plan into place if they or their partner were to pass away.
Alistair added: “Many people don’t like talking, or even thinking, about themselves or a loved one passing away. However, to pass wealth efficiently and not leave loved ones swamped by complex financial decisions it’s important that those set to receive inheritance are engaged with financial conversations from the outset.”
By using the simple RETIRE checklist, savers can check they have the basics covered before moving into drawdown.
Research – shop around to find the most suitable drawdown provider for your needs
Expenditure - calculate your living costs to find out how much you need to live on
Time – consider how long you might live for, and therefore how long your pot needs to last
Income – calculate how much income you can afford to safely withdraw from your pot
Risk – think about what you will invest in – with more risk comes bigger returns and a greater potential for loss
Engage – speak to a financial adviser, or get free guidance from Pension Wise.
1) Retirement Income Market Data Bulletin - https://www.fca.org.uk/publication/data/data-bulletin-issue-14.pdf
Research undertaken by YouGov on behalf of Zurich. The online questionnaire was completed by 660 retirees who have entered drawdown and was undertaken between 3rd and 15th October 2018.
For media enquiries, please contact:
020 7360 7878 / TSZurich@teamspiritpr.com
Notes to Editors
Zurich in the UK
Zurich provides a suite of general insurance and life insurance products to retail and corporate customers.
We supply personal, commercial and local authority insurance through a number of distribution channels, and offer a range of protection, retirement and savings policies available online and through financial intermediaries for the retail market and via employee benefit consultants for the corporate market.
Based in a number of locations across the UK - with large sites in Birmingham, Farnborough, Glasgow, London, Swindon and Whiteley - Zurich employs approximately 6,000 people in the UK.
Our Corporate Responsibility strategy aims to create value for both our company and for society as a whole. We use our core skills, risk and investment management expertise, to have a positive impact on both. For more information about the Zurich's commitment to Corporate Responsibility and the Trust's work, please visit our website here.