The Zurich report, ‘Drawdown: Is it working for consumers?’, also warned of a potential emerging gender gap in drawdown; with a range of factors, including a lack of advice, placing more women at risk of outliving their savings.
Men in drawdown have an average pension pot of £212,000, which at a 3% yield secures an annual income of £6,360.
In contrast, women in drawdown have an average pension pot of £132,000. This equates to just £3,990 each year.
In order to achieve parity, women would need to find riskier investments yielding 5% to match their male counterparts.
Longer life expectancy also means that women need to stretch out their pot over a longer period. A woman retiring at aged 65, can expect to receive £47,400 less income over a typical 20-year retirement.
Gender and advice gaps
Four in 10 (41%) women switching into drawdown were found to have no investment experience compared with 29% of men.
Women are also more likely to never review and adjust their investments in drawdown (17% women vs 10% men) and twice as likely (13% women vs 6% men) to never check the performance of their portfolio.
The findings come as an FCA review revealed that drawdown sales are now twice that of annuity sales.
The UK watchdog also found some consumers are not fully engaging with the guidance available from pension providers, potentially putting themselves at risk.
Women were found to be five times more likely than men to rely on their partner (22% vs 4%) for guidance, potentially leaving them more vulnerable, should their significant other pass away or lose mental capacity.
Furthermore, fewer than a third (32%) of women are getting ongoing financial advice, yet reported lower levels of confidence in handling drawdown without it.
Investing wisely is crucial
Rose St Louis, head of strategic partnerships at Zurich UK, said: “Women already face barriers to securing a comfortable retirement income, and it’s no longer just down to the pay gap or career breaks.
“Pension freedom has given people far greater choice in how they access and spend their retirement savings, but there are clearly unintended consequences emerging. For women, a smaller pot at retirement combined with a longer life expectancy means investing wisely is crucial.
“If consumers are less engaged with their pension then they are at risk of making poorer decisions that could result in a lower income, or even outliving their savings. For both men and women, the need for financial advice and guidance in retirement is greater than ever.”
The Zurich UK report is based on a YouGov survey of 742 people who have moved into drawdown since the introduction of the pension freedoms in April 2015.
The survey was carried out during December 2017 and January 2018.
