Drawdown rush could leave pensioners out of cash

Drawdown rush could leave pensioners out of cash

Individuals who went into drawdown following pension freedoms have an inflated chance of running out of cash in retirement, according to the distribution director of Aegon.

Speaking in a panel session at the FTAdviser Retirement Freedoms Forum in London today (2 March) Gavin Casey said the current volatile investment environment has heightened the probability of drawdown pension pots running dry from 5 per cent, prior to the ground-breaking changes at retirement last April, to 10 per cent now.

Stating there is a need for a greater education piece on the dangers of drawdown, Mr Casey added: “If you take the example of individuals who went into drawdown just after pension freedoms, you would be hard pressed to find anyone who has taken any sort of withdrawal who is not down 10 per cent on their original investment.”

Article continues after advert

Delegate also quizzed the three man panel, which also included Matthew Smith, managing director, chartered financial planner at Buckingham Gate Chartered Financial planners and Nick French, managing director, head of UK wealth management, Russell Investments, on second hand annuities.

Mr Smith said: “There could be accusations of both advisers and providers having charged a fee to sell their original annuity and then both advisers and providers charging a fee to sell it back again.

“I think in a way, the sale of an annuity from an advice perspective is going to be similar to a DB transfer in that it is probably going to be one of those areas where in 99 per cent of cases it is almost universally going to be a bad thing to do unless insurers are going to be especially generous with their offers.”

Meanwhile, Mr French said that while 10 per cent of retirement income is derived from individual contribution and 30 per cent is attributed to pre-retirement pension pot growth, the lion’s share (60 per cent) is generated at retirement.

“It shows the importance of [making sure you are covered for a good] period of time and making sure that the investment strategy is right and you stick with it,” he said.

Missed today’s Forum? Join the debate online at #RFFspring2016