Quarter of savers suffer drawdown losses, warns Metlife

Quarter of savers suffer drawdown losses, warns Metlife

The success of pension freedoms is threatened by savers regretting their decision to drawdown their retirement income, a new report has warned.

Research from Metlife found nearly half of financial advisers had seen a rise in the number of drawdown clients being hit by cuts to income and capital, with a quarter of clients suffering losses.

According to the study, which questioned 1,066 retired people who have taken out conventional drawdown, more than a fifth of customers admitted they did not understand the risks and now regret the decision to take out drawdown. 

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Simon Massey, wealth management director at MetLife UK, said: “The fact that so many drawdown customers are unhappy and did not understand the risks to their cash in drawdown is a real threat to the success of pension freedoms.”

He warned that consumer needs for real pension freedom are not being served by the rush to drawdown, with figures showing 90,700 savers invested in conventional drawdown in the first full year of pension freedoms.

This is compared with just 6,700 in the first three months of 2014.

The report, which also surveyed 1,141 savers over 40 in the run-up to retirement, revealed 58 per cent did not understand the risks of conventional drawdown.

On average, advisers across the UK said a quarter of their clients have suffered drawdown losses.

Stock market volatility ahead of June's Brexit referendum was said to pose a "serious risk" to retirees in drawdown while the turmoil caused by China last year had a similar effect.

Mr Massey claimed the industry needs to ensure that all options are considered during retirement conversations.

He said guaranteed solutions should be part of all retirement planning conversations to avoid potential problems in the future for people choosing conventional drawdown without understanding the risks.

The biggest fear for new drawdown investors is the risk of volatility, while more than half of those questioned are banking on growth to boost their funds. 

MetLife has launched a campaign for Real Pension Freedom supported by advisers as it looks to ensure savers understand all the choices available to them.