Income drawdown: the mistake that 10% of pensioners regret

What should you do with your pension savings? Many thousands have opted for income drawdown, but one in 10 regret it.

One in 10 pensioners regret opting for income drawdown when deciding what to do with their retirement savings.

According to new research from retirement firm MetLife, 20% of this group admitted they didn’t understand the risks associated with the pension income option.

“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,” says Simon Massey, wealth management director at MetLife UK.

What is income drawdown?

Income drawdown is a way of earning an income from your pension but keeping it invested in the stock market so your capital can continue to grow. The drawback is that, as opposed to annuities or other guaranteed retirement income options, income drawdown could result in your pension pot falling in value or your income falling as a result of fluctuations in the stock market.

In the first full year since pension freedoms came in 90,700 people opted for income drawdown, compared with just 6,700 in the first three months of 2014.

Since the pension freedoms came into effect in April 2015 £7.65 billion has been withdrawn from pension pots across the country, according to HM Treasury. In the last three months alone 158,000 people accessed £1.54 billion.

“Allowing people to do what they want with their hard-earned savings, whether it’s buying an annuity or taking a cash lump sum, is the right thing to do,” says Simon Kirby, the Economic Secretary to the Treasury.

“The freedoms remain a popular choice as people consider the different ways to fund their retirement.”

The risks?

However, 48% of financial advisors told MetLife that the number of clients suffering cuts to their income and capital after opting for drawdown is on the rise. A quarter of advisors said their clients have suffered losses as a result of drawdown.

The rush to choose income drawdown is not resulting in real pension freedoms, according to MetLife which wants more people to be advised about the benefits of guaranteed retirement income options.

“Guaranteed solutions have a valuable role to play in delivering real pension freedom and should be part of all retirement planning conversations to avoid potential problems in the future for people choosing conventional drawdown without understanding the risks,” says Massey.

“Savers are not being offered the retirement income solutions they need because of a lack of innovation in the market and in many cases they are not receiving essential expert advice on retirement planning.”

Of those surveyed by MetLife 12% said they regretted not taking financial advice before choosing to invest their pension savings in drawdown.

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