The advent of the pension freedoms gave retirees more control over their pension savings than ever before. Rather than buying an annuity, the majority have since opted to keep their pension invested, and have taken an income by drawing down at regular intervals. Yet this means that retirees' savings are at the mercy of stock market fluctuations, and the recent downturn could have understandably left many worried about the state of their savings.
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Research from Aegon shows that 43% of retirees surveyed are concerned about the impact of current market conditions, and are considering if the amount of income they're taking is sustainable for the long term. Yet despite this, most are holding their nerve: 67% said they aren't taking any action following the recent global stock market volatility and are choosing to keep their money where it is, while just 11% are reassessing their investment strategies in order to diversify.
Not only that, but over half (52%) said they haven't decreased their rate of drawdown withdrawal as a result of this volatility, and 58% haven't reduced their exposure to equities, despite the sector noting record outflows in recent months.
But while retirees themselves aren't concerned, the wider industry is: data from the Financial Conduct Authority recently revealed that those taking regular sums from drawdown policies have increased their rate of withdrawal to 5.8%, up from 4.7% in 2016/17, and there are concerns that this may not be sustainable against current market conditions.
"The current downturn in markets will undoubtedly test the nerves of retired investors," said Nick Dixon, Investment director at Aegon. "Current market instability comes after over a decade of strong gains, and this coupled with the introduction of pension freedoms may put some retirees at risk of running out of money in later life at a time when their pension pot is at risk of falling in value.
"It is positive to see that overall retirees aren't phased by current market conditions, but this shouldn't turn into complacency. Retired investors would be wise to reassess their pensions, with the help of a financial adviser, to consider the amount of money they are taking out of their pension pot and ensure their investments are diversified enough."
Others may want to opt for a blended approach, whereby some of their pension is used to buy an annuity and the remainder kept in drawdown, offering the combination of flexibility and a portion of income that's guaranteed. Go here for our no-obligation annuity planning service to see the kind of options available.
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