Figures showing a sharp increase in the number of pensioners choosing income drawdown plans have raised questions about whether retirees are making bets they can’t afford to lose, Just Retirement warned.
Association of British Insurers statistics published last week revealed sales of annuities have fallen by over a third between the first and second quarter of 2014 and there has been an increase in sales of income drawdown contracts, but with a smaller average pot size than previously.
Just Retirement is concerned that the lessons learned about volatility in financial markets, clearly demonstrated by events following the collapse of Lehman Brothers six years’ ago this week, are being forgotten with new ‘pension freedom’ rules allowing for some retirees to make over-ambitious investment choices.
Stephen Lowe, group external affairs and customer insight director of Just Retirement, said: “It seems that people who once would have been discouraged from taking investment risk with pension money are now opting for plans that are likely to be more risky and complex. It looks like a triumph of hope over experience.
“There is no problem with people taking more investment risk if they can afford to ride out the ups and downs. The problem comes when people are relying on those investments performing in order to pay day to day living costs, because history tells us that asset prices fall as well as rise.”
