Savers who have taken out traditional drawdown plans since the launch of pension freedoms lost more than £160m from their funds due to stock market volatility, Metlife estimated.
Since 6 April there has been a surge in drawdown sales, with Metlife stating up to 25,700 customers have spent around £1.75bn buying such policies to the end of August.
However, the at-retirement reforms also coincided with worldwide stock market volatility, in particular the FTSE 100 sliding around 10 per cent from the 6,833.5 level on 2 April before the start of pension freedoms.
The market hit a high of 7,104 on 27 April and has dipped below the 6,000 mark in the five months of pension freedoms.
Metlife estimated total losses for customers to the end of August were £160m, even with the recovery at the end of the month providing some late comfort.
Dominic Grinstead, managing director of Metlife UK, said the losses should act as a warning about the sequence of returns risk to retirement savers from traditional drawdown and how the impact of heavy losses early on in retirement can mean the fund runs out later on.
The provider’s calculations showed a £100,000 fund from which the customer is taking a £5,000 annual income, increasing by 3.5 per cent a year, would run out after 16 years if it suffers heavy losses in the first two years; even if it then sees strong returns in later years.
Mr Grinstead 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 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.
Last month FTAdviser revealed the industry was split as to how Black Monday’s market falls would affect recent retirees who opted to stay invested via drawdown.
At the start of August, the latest figures from Iress showed that the number of drawdown contracts was up 72 per cent from this time last year.
As global stocks slid on 24 August after a Chinese economic crisis, Duncan Jarrett, managing director for retail at Aegon, said market ups and downs are to be expected, but this ‘Black Monday’ was difficult news for an adviser to deliver to a client retiring into today’s stock market.
He said: “With an increasing number of clients opting for flexi-access drawdown on retirement, this downturn may have caused some painful losses at a time when people’s pension pots are at their largest and which can be difficult to recover from.”
emma.hughes@ft.com
