Third of retirees relying on drawdown have never invested

A third of people using drawdown to fund their retirement have no investment experience, though two in five of those have not received financial advice or guidance, revealed new research from Zurich UK.

The firm found that almost half a million 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 of them have not approached regulated advisers for guidance, even though the average drawdown pot is valued at £153,000.

The study further warned that a lack of advice and guidance could leave retirees at risk of running out of money in retirement. Making poor decisions in drawdown could result in consumers taking on too much risk, missing out on investment growth and potentially making unsustainably high withdrawals.

The research illustrated that women in particular were more likely to be first-time investors at 41% compared to men at 29%.

According to Zurich, the ‘first-time investor gap’ is being driven by a “lack of consumer understanding on drawdown”, with 47% of novice investors who had not received advice stating that they thought drawdown would be “simple”. A third of those investors claimed that they were “confident” in their investment decisions, despite having no previous experience.

Zurich pension expert Alistair Wilson 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 many have no hands-on investment experience when they take control of their pot. For retirees not getting advice or guidance, 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.”

Furthermore, the research suggests that one in ten UK adults not receiving financial advice rely on search engines to help them navigate the complexities of drawdown, while one in five scour newspapers and magazines.

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.

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,” Wilson concluded.

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