The pension freedoms were meant to bring about options and opportunity, but the biggest fear among retirees is running out of money.
Aegon surveyed 250 financial advisers, who said on average 74% of clients’ assets are invested in drawdown, compared to just 16% in annuities and 10% in cash.
The survey also found that 38% of advisers said clients’ biggest fear is running out of money in retirement, followed closely by not having the lifestyle they want (32%) and not being able to maintain income in retirement (25%).
Changing landscape
Nick Dixon, investment director at Aegon, said: “There’s been huge growth in the retirement income advice market since the introduction of pension freedoms.
“In the light of greater flexibility and complexity, clients are relying on advisers for guidance in the decisions they make.
“Many retirees are unsure of their options and fear running out of money. It’s crucial that these retirees seek financial advice to build confidence and manage their savings.
“It’s no longer the case that most retire at a point in time and purchase an annuity. The retirement landscape has become more varied and complex, with retirees now choosing when they retire, how they invest and how much income they should take.
“While the pension freedoms rules appear to have been embraced by many savers, they will only be tested in earnest when the majority rely primarily on defined contribution pensions, rather than defined benefit options.
“The really big changes are yet to come.”
Common challenges
The survey also found that advisers believe the most common challenge with retirees is how to create a retirement income (75%).
Understanding all the options available for clients to invest their money (64%) and saving enough for retirement (64%) made up the top three.
Deciding whether to consolidate pensions or transfer out of a defined benefit scheme took 24% of the vote, while in helping their children and IHT planning came in at 21% and 19%, respectively
What is most important to retiring savers?
Aegon’s survey of advisers also found that risk reduction (53%) was the most important thing for retirees.
It was far in front of other (21%), generating high returns (13%), preserving size of annuity (7%) and not sure (6%).
“This emphasis on risk management makes a lot of sense, given the shorter investment horizon those in retirement will often have and the impact of regular income withdrawals on pension savings,” Dixon added.
“However, too great a focus on keeping risk low could hamper savings growth and income longevity potential.”
Investments types
Within the survey, advisers said they were invested mostly in multi-asset (32.6%).
This was followed by equity growth (16.9%) and equity income (15.8%).
“A high proportion of assets also remain in equities (growth and income), in comparison to lower-risk fixed income and cash investments,” said Dixon.
“This may demonstrate a recognition that retirees could be in retirement for several decades and that lower-risk investments may not provide the growth potential to sustain a decent level of income.
“The recent poor returns from fixed interest will also be a factor.
“Interestingly, our results also show that a third of retiring clients’ assets are invested in multi-asset strategies.
“These strategies are well diversified and are easy to use and explain to clients. They also often come with in-built risk management.
“It’s likely that advisers often recommend the same strategies that the client used in the accumulation phase but dial down the risk level to cater for partial then full retirement.”
