Pension freedoms see drawdown investors profit despite fluctuations

Drawdown investors' pension savings could have increased by up to £62,000 since the introduction of pension freedoms, research from Aegon has revealed.

However, the value of certain asset classes fluctuated significantly over this period, and the same investors' savings would have swung between £330,000 and £488,000 at their lowest and highest points, if invested in the ABI Global Equities sector average.

The analysis is based on an individual with a £400,000 pension pot taking a £20,000 annual income from day one of the pension freedoms and includes £80,000 in income payments.

If invested in global equities, the average person’s savings would currently be £462,000, while the same value pot invested in the ABI Global Fixed Interest would be worth £367,000.

ABI Global Equities investors saw the greatest swing in value at £158,000, while those invested in the ABI Mixed Investment 20%-60% Shares fluctuated just £50,000, between £355,000 and £405,000.

Aegon investment director, Nick Dixon, commented: “The pension freedoms have been embraced by retirees and come with a great many benefits, not least of which is the potential for savings to continue to experience investment growth into retirement.

“Their flexibility does however introduce new considerations for savers and, as our figures show, those who opt for drawdown need to be comfortable with the idea that the value of their pension will rise and fall over time.

“Markets have generally performed well since the introduction of the freedoms, but even so, some of the swings in value have been quite significant.”

Retirees invested in global equities could have seen their savings increase beyond its original value, despite £80,000 withdrawn in income, while those in UK equity income would have reduced by £10,000, those in mixed investment by £31,000 and those in global fixed interest by £33,000.

Dixon concluded: “People who opt for drawdown need to be comfortable that the investments they’re holding match their risk appetite and should reassess the investments they hold and the level of income they take from their savings at regular intervals.”

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