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Drawdown investors in profit but face volatility

Risk-reward-attitude-profitInvestors in drawdown have experienced positive returns since the pension freedoms started despite big swings in certain asset classes, Aegon research says.

The analysis of Morningstar Direct data produced by Aegon looks at an individual with a £400,000 pension pot taking a £20,000 annual income from day one of the pension freedoms.

Aegon then tracked the way the pot has fared since 2015 through a variety of different investment strategies including global equities, UK equity income and global fixed interest.

The figures are based on Association of British Insurers sector averages, net of charges with gross income reinvested for four years to 7 April 2019 [see table below].

Those invested in global equities will have seen the value of the pension grow beyond its original starting value, a particularly strong result given the £20,000 annual income being taken.

The original £400,000 had become £462,000 as of April 2019 while those in UK equity income, the cautious investment mix and global fixed interest all saw the value of their savings decrease.

But in all cases those decreases were significantly less than the £80,000 total income taken.

Pension freedoms complicate retirement decisions

Aegon investment director Nick Dixon says: “The pension freedoms have been embraced by retirees and come with a great many benefits, not least of which is the potential for savings to continue to experience investment growth into retirement.

“Their flexibility does however introduce new considerations for savers and, as our figures show, those who opt for drawdown need to be comfortable with the idea that the value of their pension will rise and fall over time.

“Markets have generally performed well since the introduction of the freedoms, but even so, some of the swings in value have been quite significant.”




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