DrawdownApr 6 2018

Advised drawdown clients happier than non-advised

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Advised drawdown clients happier than non-advised

Advised clients are more likely to be happy with their income drawdown plan in retirement than those who made the decision to keep their pension invested alone, a new poll gauging consumer sentiment three years on from pension freedoms has suggested.

The survey found just 3 per cent of clients who used pension freedoms to take out a drawdown product to keep their pension invested while taking an income but received ongoing advice, were unhappy with their choice.

Almost three times as many - 11 per cent - of non-advised clients regretted their decision.

The poll had questioned 750 people, advised and non-advised, in January 2018 on whether they would put their pension into drawdown again if given the chance.

A majority of people who opted for income drawdown since April 2015 were happy with their decision, with eight in ten people (81 per cent) saying they would buy it again, while 7 per cent would not, and 11 per cent were uncertain.

Alistair Wilson, head of retail platform strategy at Zurich, which commissioned the poll, said: "While it's still early days, our findings suggest that the vast majority of people in drawdown are happy with it.

"In particular, people said they like the freedom and flexibility of drawdown, and the control it gives them over their savings."

But he added: “Our findings suggest a lack of advice could be a key factor, with almost four times as many non-advised consumers reporting they are dissatisfied in drawdown.

"But unlike an annuity, the crucial advantage of drawdown is that consumers aren't locked in for life, and can switch to a retirement option more suited to their needs.”

Pension freedoms have given many savers the option to buy drawdown products, as opposed to annuities, for the first time, in turn radically transforming the UK retirement income market, but also exposing them to significantly more investment risk.

According to recent figures from Hargreaves Lansdown, back in April 2015 about 90 per cent of people bought an annuity. Now 12 per cent are choosing an annuity, 34 per cent are remaining invested and drawing from their pension and 54 per cent are cashing in their whole pension.

Zurich said the positive response to its survey showed drawdown was doing “what the government set out for it to do which is for people to be more in control of their retirement.”

But Mr Wilson cautioned any major market jitter threatened to turn consumer sentiment on its head, particularly for the non-advised.

He believed if he were to ask the same people again in 15 years’ time he would find those who have taken advice, or sought guidance, to be “substantially more satisfied with their financial outcomes in drawdown than those attempting to navigate it on their own".

Markets have been on an upward trajectory since the freedoms but there were signs of a correction in the early parts of this year when the FTSE 100 was down for several days after markets tumbled in Asia and the US.

Insurer Prudential warned investors to reduce their withdrawal amounts at the time as volatile markets early on in retirement could accelerate losses in a phenomenon known as pound cost ravaging.

It warned non-advised pensioners could see their later life savings eroded if markets continued to fall while they were drawing down funds for retirement.

But the same did not apply to advised clients.

"We plan for annual downturns well in excess of what has been experienced in the past week,” Alistair Cunningham, financial planning director at Wingate Financial Planning said at the time of the February market turmoil.

"I struggle to even entertain a discussion on why an individual should change strategy based on what is currently happening."

Robert Forbes, Chartered financial planner at Stadden Forbes, and Martin Bamford, managing director of Informed Choice, said it was too soon after pensions freedoms to be sure how drawdown was working for consumers but they both agreed advised clients would be happier further down the line.

Mr Forbes said: “Of course [non-advised] people are happy because they haven’t got to the point where they’ve run out of money. Three to four years down the line that might change.”

Mr Bamford added: “In the past three years we’ve had reasonably benign market conditions. The satisfaction of those in drawdown might be tested more in the next three years, if we see a return to more usual levels of market volatility.”

Mr Forbes said advisers were adding value by "making sure the portfolios are orientated in a way that makes them as bullet proof as possible, especially in drawdown.”

This can be done by closely monitoring the relationship between the fund, withdrawals and market conditions and by ensuring people have enough cash sitting alongside their strategies for them to dip into when markets are down.

“There will be ones that would have taken more money out than they perhaps should and our job is to stop them taking so much money out,” he said.

The government and regulator have already recognised the inherent dangers in non-advised drawdown and have previously said they were considering the merits of new forms of default strategies.

The work and pensions select committee called for the same measure in its final report on the pension freedoms published  yesterday (5 April).

If implemented, providers and Nest could be forced to offer standardised pathways to consumers who cannot or do not want to make their own choices. The product fee on those would be capped at 0.75 per cent.

carmen.reichman@ft.com