Research among pension fund trustees by Intelligent Pensions has found the expectation that 62 per cent less retirees will buy an annuity when they retire from April 2015, while most pension plans have them on course to buy one.
The study among 163 people, mostly those in charge of company pension schemes, estimated 91 per cent of defined contribution scheme members are currently invested in a default strategy predicated on a ‘cash plus annuity’ outcome.
This was deemed to be insufficient for a satisfactory retirement, with Intelligent Pensions leading calls for more to be done to provide support for those in the years approaching retirement.
Andrew Pennie, marketing director at the specialist pensions adviser, said there was no doubt that many DC pension members are using an investment strategy that is at odds with what they are likely to decide to do at retirement.
He said: “Those within five years of retirement are desperately in need of urgent support and assistance.
“Many will unwittingly be de-risking their pension and missing out on investment opportunities only to find they will need to re-invest their pension at retirement if they choose income drawdown.”
Mr Pennie also stated that there was a “huge amount of uncertainty and concern” around the guidance guarantee, in terms of its form and remit.
He said: “We see the guidance guarantee as a particularly good initiative for those looking to buy an annuity or to cash out their pension.
“However, for income drawdown investors, guidance, six months from retirement, is likely to be too late and the decision, and resulting investment strategy, should have been decided much earlier.”
Of course Intelligent Pensions has a stake in this issue, having recently launched the Pathways decumulation service, aimed at helping DC members make the correct investment decisions when five years away from retirement.
The online service allows those where annuity or cashing out their pensions is not suitable, to build a retirement model showing their future income from all available resources.
It validates whether income drawdown is suitable, identifies any shortfalls and suggests the optimal asset allocation to meet the individual’s objectives.