Alistair Wilson 06 April 2018
The need for financial advice and guidance is greater than ever
Drawdown: Is it working for consumers?
It’s three years since the Government revolutionised the retirement market by scrapping rules that compelled many people to buy an annuity.
Since then, consumers have embraced their new freedom, with twice as many people now putting their pension into drawdown, as buying annuities.
But while more and more people are moving into drawdown, little is known about how it is working for the first wave of pension freedom retirees embarking on it.Overview
This report – based on a sample of almost 750 people – is the first and largest study to explore the impact of drawdown on both the financial and emotional well-being of consumers.
Overall, we find that drawdown has been a clear success from the point of view of consumers, who are embracing the freedom and flexibility it gives them over their pension savings. Eight in ten people, for example, would choose to put their pension into drawdown if they were making the decision again.
However, a number of areas of potential concern are also starting to emerge:
• First-time investor gap – the highest proportion of consumers moving into drawdown have no investment experience, yet a significant number of these individuals are not seeking either advice or guidance
• Drawdown gender gap – compared to men, women in drawdown reported lower levels of investment experience, financial confidence, and engagement – pointing to the potential emergence of a new drawdown gender gap
• Income sustainability gap – initial evidence suggests that consumers could be making poor choices over their withdrawal strategy, taking the same level of income regardless of how the stock market has performed
• Later-life security gap – while the population in drawdown is rising, few consumers are making adequate plans for managing drawdown in old age, meaning there could be no one to manage their pension if they no longer can
The need for financial advice and guidance is greater than ever and, as we find in this report, will increase as the population in drawdown grows and ages. Understanding what more can be done to encourage consumers to seek advice or guidance is crucial to helping retirees secure a decent, lifelong income.
Alistair Wilson, Head of Retail Platform Strategy, Zurich UK
Click here to request a copy of the Drawdown whitepaper.