Drawdown pensioners less happy

Drawdown pensioners less happy

Lower earners in drawdown pensions are more likely to show signs of depression than those with an annuity, research by think tank Demos has suggested.

According to the findings, published today (19 November), almost one in five lower income earners with drawdown pensions said they have not enjoyed life over the past week. This compares to 9 per cent of those in the same income group who bought an annuity.

These individuals were also more likely to say that they had felt ‘sad’ for much of the past week (22 per cent), compared to retirees who knew exactly what income they would get month-to-month (15 per cent).

For pensioners on more modest incomes, 13 per cent in drawdown said they never felt free to plan for the future, compared to 5 per cent of those with an annuity.

The research, commissioned by Legal & General (L&G) and published in its report Retirement Income Riddle: New perspectives on how we make financial choices and their impact on our wellbeing, explored the emotional impact of retirement decision-making.

The report suggests up to 50,000 pensioners on lower incomes who chose drawdown prior to the pension freedom reforms in 2015 are now finding life more difficult than those with an annuity.

It also notes since the 2015 pension reforms a mere 187,000 people have taken out an annuity, which provides a guaranteed income for life, compared to more than 436,000 drawdown customers. 

The research had analysed 1,843 respondents in Wave 7 of of the English Longitudinal Survey of Ageing who had indicated they had an annuity or a drawdown product during 2014 to 2015.

Emma Byron, managing director of retail retirement income at L&G, said the findings did not suggest annuities made people happier but highlighted a one-size-fits-all approach was 'yesterday’s solution to yesterday’s problem'.

She said: "Our research with Demos shows that in the face of more choice, consumers need better guidance and support to understand how the financial decisions they make can affect their retirement journey.

"Pension Freedoms is still settling into the retirement landscape, but it is clear that thousands of consumers are potentially choosing or defaulting into options which could be damaging not just for their financial circumstances, but for their health and wellbeing too.

"It is worrying just how many people say they are unhappy – as an industry, we need to bring back the emotions often left out of financial services conversations, because it is our job to help them understand what the implications are of each of the products."

Michelle Cracknell, chief executive at The Pensions Advisory Service, said the findings pointed to a future conundrum that could impact advisers.

She said: "When you think about the majority of drawdown cases, advisers will be charging a percentage of funds under management.

"But at the time when people need the most help their fund has shrunk to a smaller size, so the actual income for the adviser will be smaller."