New research shows that retirees’ biggest concern about utilising pension freedoms is running out of money, with more than half favouring risk reduction over generating higher returns.
It is now almost four years since pension freedom rules were introduced. At the time many speculated that these new rules could create a “Lamborghini problem “- with retirees spending their company and private pensions, rather than conserving wealth for their retirement.
But new research from Aegon appears to show that the opposite it true. Its survey found that 38 per cent of advisers said clients biggest fear was running out of money; 32 per cent said client were also worried that they won’t be able to have the lifestyle they’d like in later life.
This cautious attitude was reflected in the fact that over half of advisers surveyed (53 per cent) said clients favoured risk reduction. As a result a third of clients’ assets (33 per cent) were invested in lower risk multi-asset strategies.
The research also found that three quarters of advisers (74 per cent) said clients were looking at phased retirement options, with only 20 per cent going form their usual work pattern to full time retirement.
With pension freedoms providing greater flexibility and choice, retirees are looking to advisers for help with managing money in retirement. Since these rules freedoms were introduced, advised clients are preferring to enter drawdown rather than take an annuity or use cash: with 60 per cent of advisers saying their retiring clients hold three quarters or more of their assets in income drawdown.
Research shows that 82 per cent of retiring clients hold a quarter or less of their assets in annuities, and an even higher 89 per cent of advisers said their clients hold a quarter or less in cash.
Aegon says this research reflect a “complex and evolving retirement landscape” with retirees’ priorities shifting as they take advantage of the flexibility and choice offered by pension freedoms.
Aegon’s investment director Nick Dixon says: “The world of work is changing fast and retirement is increasingly a journey of change rather than an event.
“Pension freedoms have enabled individuals to adopt a more flexible transition into retirement, with people accessing pension savings to support a reduced working pattern.
“Our research shows that, with the flexibility, advisers are finding that clients are relying on them to guide them in the decisions they make, as many retirees fear running out of money. It is crucial, that those at or approaching retirement seek financial advice to help build confidence and manage their money.”