Pension investors plan to embrace the new pension freedoms set to come in from April, but the vast majority still want to buy an annuity as part of a blended and phased retirement solution that incorporates drawdown to generate retirement income, according to a survey.
Research conducted by Hargreaves Lansdown among 6,912 investors found 71.6 per cent of them still want a guaranteed income in retirement. However, investors indicated that they intend to use a mix of annuities and drawdown to generate retirement income.
A recently published Axa survey found that 58 per cent of advisers plan to recommend to their clients a blended or mixed approach from April combining more than one retirement solution, while 21 per cent said they plan to recommend drawdown more to their clients.
Cars were cited as the most popular single expenditure item for pension cash.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “The Budget reforms have had a remarkable impact on investor sentiment towards pensions. At a stroke the chancellor has reinvigorated pensions and made retirement saving attractive once more.
“For investors looking to take cash from their pension, the most popular single expenditure item was buying a car; this came up higher than holidays, home improvements, or even spending on family or children. No doubt this will be music to the ears of motor dealers.
“We were interested to see that investor interest in drawing money from pensions to invest in property appears to be waning, with only around 3.5 per cent selecting this option.”
But Mr McPhail said investors won’t necessarily blow the cash and many are already showing a prudent approach. By far the most popular two intended uses for cash from pensions were to provide an income to live on, and to reinvest in Isas.
Hargreaves Lansdown’s findings are in line with those of Australia.
According to the Challenger Retirement Income Research, Australia, dated April 2012, only 4 per cent purchase an annuity at-retirement in an average year.
Around 32 per cent instead buy a home, pay off a mortgage or make home improvements; while 19 per cent buy a car or pay off a car loan. More positively, 21 per cent kept it invested in a pension scheme.
At the end of last month, specialist provider Just Retirement told FTAdviser that guaranteed income must remain at the heart of financial planning, as people need to pay the bills without worrying if next month’s ‘pay cheque’ will be delivered in full.
emma.hughes@ft.com
