After almost a decade of strong gains, global stock markets have fallen in recent weeks forcing many retirees to consider where their pension pot is invested and whether or not the amount of drawdown income they are taking in retirement is sustainable.
Despite this, research carried out by Aegon shows that overall retirees are holding their nerve when it comes to keeping pension savings invested through retirement. While 43 per cent of retirees say they are concerned about the impact of current market conditions on their retirement income sustainability, just one in ten (11 per cent) are reassessing their current investment strategies in order to diversify. A high proportion (67 per cent) said that they aren’t taking any action as a result of market volatility and leaving their money where it is.
With data from the Financial Conduct Authority showing that those taking regular sums from drawdown policies have increased their rate of withdrawal from 4.7 per cent in 2016-17 to 5.8 per cent in 2017-18, there are concerns that retiree’s drawdown withdrawal may not be sustainable against current market conditions. Aegon research shows that when asked whether they had decreased their rate of drawdown withdrawal as a result of global stock market volatility, over half (52 per cent) said they hadn’t.
Similarly, retirees whose pension pots remain invested may be tempted to move away from investment in equities following record outflows in recent months, however 58 per cent of those surveyed said they haven’t reduced their exposure to equities in the last 12 months.
Nick Dixon, Investment Director at Aegon, says: “The current downturn in markets will undoubtedly test the nerves of retired investors. Current market instability comes after over a decade of strong gains and this coupled with the introduction of pension freedoms may put some retirees at risk of running out of money in later life at a time when their pension pot is at risk of falling in value. It is positive to see that overall retirees aren’t fazed by current market conditions, but this shouldn’t turn into complacency. Retired investors would be wise to reassess their pensions, with the help of a financial adviser, to consider the amount of money they are taking out of their pension pot and ensure their investments are diversified enough.”
