A third of people currently in drawdown have no experience with investing at all, putting them at risk of struggling with their income in later life, a provider has warned.
Zurich carried out research among people who entered drawdown - remaining invested while taking an income - following the pension freedom reforms of April 2015.
It found 32 per cent were first time investors.
Of those some 54 per cent were not receiving ongoing advice and two in five (41 per cent) of the non-advised had not sought guidance either.
Zurich said: “Drawdown can be complex, especially for consumers who are managing investments for the first time.
“Given the potential complexity of drawdown, these consumers could be at higher risk of poor outcomes.”
The provider said the trend could be explained by the fact some consumers had other sources of income or small pots.
Yet it found for almost two in five (37 per cent) first time investors, drawdown was their main source of retirement savings.
The provider had questioned a representative sample of 742 people in drawdown at the beginning of the year.
Overall, fewer than half (45 per cent) of them said they were getting ongoing advice on managing their drawdown.
But almost 28 per cent said they are seeking occasional advice or sought advice before putting their pension into drawdown.
The provider thought the usage of advice could be changing to a more ad hoc one, where people dip in and out as needed.
But Alan Chan, director at IFS Wealth and Pensions, suggested the market was not positioned well to give such a service.
He said: “Most advice firms are looking to attract long term relationships with clients and are not looking for many one-off cases.
“One-off advice cases can be more expensive as an upfront cost to the client, as many advisers will usually discount the initial fees if the clients are happy for ongoing service and management.”
He thought Zurich’s figures could have been influenced by clients needing one-off advice for defined benefit pension (DB) transfers, where advice is mandatory for pots worth more than £30,000.
Zurich found half of those shunning advice had more than £201,000 to invest, almost a quarter (22 per cent) even had more than £500,000.
Almost two in five (38 per cent) non-advised consumers were not receiving guidance either.
In addition, about a third (31 per cent) of non-advised consumers told Zurich they never checked their investments or checked them only about once a year while 41 per cent were withdrawing the same amount from their pension, regardless of how the market was performing.
Pension investors taking an income from their assets while they are still in the financial markets are particularly exposed to sequencing risk - the erosion of capital when drawing down funds during market falls.
Zurich said: “While further investigation is needed, this may be an early warning sign that some consumers are adopting an unsustainable withdrawal rate, which could reduce their chances of achieving a lifelong income.”
MPs last week proposed to introduce a default guidance option for people who do not want to make their own investment decisions, akin to auto-enrolment.
But Mr Chan thought a one size fits all solution for drawdown might not work for drawdown.
He said: "A default fund works for auto-enrolment because everyone is in the accumulation phase and relatively speaking the risks are lower than when people start to decumulate funds.
"At the point decumulation, some people may need to take a higher level of risk in order to sustain the level of income they are withdrawing, or alternatively they may not need to take very much risk at all for their desired level of income.
"So a default drawdown fund does not suit everyone and may be over-simplistic and create a false sense of security to those who don’t take advice."
Two in five people who had not received guidance or advice told Zurich it was because drawdown was simple, rising to almost one in every two among first-time investors.
A third of consumers also identified cost as a barrier, saying they didn’t want to pay for advice, while some sought advice but considered it unaffordable.
Zurich said: “This may suggest that some consumers are underestimating the complexity of drawdown.
“And with a quarter (28 per cent) of consumers saying a lack of trust stopped them speaking to an adviser, the industry still has work to do in communicating the value of advice and building trust in the profession.”
carmen.reichman@ft.com
