The current volatility in world markets could have wiped 8 per cent off the value of a typical drawdown fund since April 2015, according to a Retirement Advantage report.
Retirement Advantage stated more than 43,000 drawdown plans were sold in the first six months of pension freedoms, and many people could now find themselves waiting for markets and pension values to recover before taking an income.
The retirement specialist said a retired person who took out an income drawdown plan at the start of April 2015 would have done so when the FTSE 100 stood at 6,961 (as at 7 April 2015).
The FTSE 100 closed on 28 January 2016 at 5,931 points, down 15 per cent.
However, most drawdown customers will be in a mixed portfolio of equities, bonds and cash, which Retirement Advantage claimed could have fared slightly better, at minus 8 per cent, before charges.
According to Retirement Advantage a £100,000 drawdown plan invested in a mixed portfolio of assets (having taken an income of £5,571 which matched the annuity rate available at the time), would now be worth £86,522, or 13.5 per cent less than nine months ago.
Andrew Tully, pensions technical director at Retirement Advantage, said: “This won’t be a great start to your retirement. Losing around a tenth of your pot in 10 months will leave many people feeling queasy about the future.
“It is easy to say ‘don’t panic’, but you might well be spooked if you are relying on drawdown to generate an income, as you will probably need to sell units in a falling market.
It is easy to say ‘don’t panic’, but you might well be spooked if you are relying on drawdown to generate an income.“This may well push people into a period of ‘drawdown captivity,’ rightly not wanting to crystallise losses, but needing to look at other options to pay the bills.
“If you can afford to sit tight and ride out the roller coaster, then great.
“However, for income seekers, you need to think of alternatives to drawdown. The natural yield from investments is unlikely to provide the income you need in the current environment, and this is where other ideas come into play.
“The old days of using either an annuity or drawdown are over. If you want to sleep easy at night, then a blend of both products may be best.”
Jonathan Rowley, director and IFA at Sheffield-based Hamnett Wealth Management, said: “Whenever there is market volatility people do really need to review what they’re doing with their money.
“Had people kept sufficient money in cash to cover income for the first two years, together with investing in non-FTSE 100 type funds, it would have held up their portfolio better.
“Hindsight is a wonderful thing. when markets are so volatile.”