Personal Pension  

Brexit stress tests income drawdown investors

Brexit stress tests income drawdown investors

Steve Lowe, group communications director at Just Retirement, said volatile financial markets in the wake of the UK’s decision to leave the European Union are a reminder for the new generation accessing income drawdown not to risk pension cash they can’t afford to lose.

The days following the referendum results announcement should be seen as a “stress test” of longer term financial planning of many of those who have used pension freedom rules to keep pension funds invested via drawdown plans, in Mr Lowe’s view.

As of today (29 June) European and US equity gauges are firmer as a steadier showing by the British pound offered investors some reprieve from the Brexit-driven turbulence of recent days.

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A flight to safety that hammered stocks — global bourses lost $3tn over Friday (24 June) and Thursday (23 June) and took yields on a variety of government bonds to record lows while propelling gold to a two-year high, is showing further signs of easing as markets calm down.

Today (29 June) Sterling, which has borne the brunt of investor angst in the wake of the UK’s decision to leave the EU, is 0.4 per cent stronger at $1.3390.

Mr Lowe said: “Drawdown is now seen on offer to mass market customers with modest pension funds rather than being just for wealthier people who can ride out financial storms.

“In recent days drawdown investors have been warned to think twice before taking pension money. That is not much help for the many who are relying on taking that money to pay the bills and put food on the table.

“Anyone feeling anxious about what is happening now should consider if they are putting at risk money they are relying on to underpin their living standards later.”

According to Association of British Insurers statistics, about 80,000 drawdown plans were purchased in the first 12 months of pension freedom with an average fund invest of £66,000.

A similar number of guaranteed income for life solutions, offering payments that aren’t affected by market volatility, were purchased with an average fund of around £53,000.

However the Brexit has also had a negative impact on annuity rates.

Peter Bradshaw, national accounts director at Selectapension, pointed out annuity providers have cut their annuity rates by as much as 2 per cent.

He said: “The role of advisers is essential to help both those accumulating pots, and those at retirement, to make sure they have sufficient income to maintain their living standards.”

Daren O’Brien, director at London-based Aurora Financial Solutions said many people who recently took drawdown without advice will start to realise too late the problems when taking income in a volatile or falling market.

Mr O’Brien said: “We recently refused to take on a client who wanted to withdraw 15 per cent per year from their drawdown while looking for us to provide the investment advice. We advised them to find another adviser.”