Recent analysis from MetLife shows that investors opting for traditional drawdown since pension freedoms came into effect have lost roughly £160m due to volatile stock markets.
In spite of the rally towards the end of August, which provided some “late comfort”, the group has warned of the returns risk from traditional drawdown and how the impact of heavy losses earlier in retirement can means savers’ funds will dwindle prematurely.
It has calculated that a £100,000 fund, paying out a £5,000 annual income, rising by 3.5% a year would run out after 16 years if it suffers heavy losses in the first two years – even if returns picked up strongly in later years.
With annuities no longer compulsory, MetLife estimates up to 25,700 customers have spent around £1.75bn buying drawdown policies to the end of August as markets have fallen.
With volatility set to continue, for expat clients considering a return to the UK since April, the need for advice over their pension savings vehicle – and the corresponding tax implications – is more crucial than ever.
Dominic Grinstead, managing director, MetLife UK said: “The new savers attracted to traditional drawdown by pension freedoms have had a harsh introduction to the new rules and many will be counting the cost of the global stock market slide.
“Markets of course go up as well as down but losses in the early years of a traditional drawdown are a major worry and the risk needs to be understood by anyone opting for drawdown as it has major implications for retirement planning.”
To address the market falls, MetLife has launched a flexible guaranteed drawdown Retirement Portfolio with daily lock-ins to stop, start and restart income drawdown to suit their needs, offering flexibility without incurring additional charges.
Minimum investment is £30,000. Guarantee charges start from 0.6% on the Secure Income Option and 0.3% on the Secure Capital Option.