Over the last few weeks I’ve been reviewing recent reports available to the advisory community. The one which particularly caught my attention was “Drawdown: Is it working for consumers?” which was produced by Zurich. It is based on a YouGov survey of 742 people who have moved into drawdown since pension freedoms began.
The main points I pulled from the research were that the biggest group – 32 per cent – admitted that they had no investment experience as they were first time investors. I suspect, although I cannot be sure, that this group make up the majority of the 28 per cent who have not sought advice and the 18 per cent who sought advice originally but are no longer receiving any.
In total 55 per cent are not receiving any ongoing advice, despite the average pension pot across the sample being £192,000. So, although this figure would include some relatively small pots it must also include some larger pension pots.
The reason the majority cited for not seeking advice in drawdown included “I don’t need advice, I am confident I know what I am doing” (52 per cent of those surveyed) and “drawdown is simple to manage and doesn’t require financial advice” (43 per cent).
There were also a few more worrying answers in that a third said they didn’t want to pay to receive financial advice and 28 per cent said they don’t trust financial advisers. Even more concerning was that a third were relying on drawdown as their main source of retirement income. Clearly, we in the advisory community have a lot more work to do.
The research also found four main gaps emerging. These were:
- A clear gap in the take-up of advice and guidance among first-time investors. The main concern is that poor decisions can result in investors taking too much risk, missing out on investment growth and taking unsustainably high withdrawals.
- The gender drawdown gap. Here, the evidence suggests a greater number of women than men could be at risk of poorer outcomes as generally they have less investment experience and are more likely not to review and adjust their drawdown investments.
- The sustainability gap, which is probably has the longest-term consequences. The research shows that consumers are withdrawing significantly more than just the performance of their pension pots and this is with the benefit of a bull market since the freedoms came in. It will be interesting to see what impact significant market falls will have in the future. The recommendation of the report is that estimating a safe withdrawal rate is key.
- The later life security gap, which is interesting given that the need to annuitise at age 75 has been abolished. The report suggests that few are taking steps to protect their financial security in old age and as the drawdown population ages there will be a greater need for advice. However, based on current trends, this is unlikely to be available without an injection of new advisers.
- The report makes a number of recommendations which are worth a read. Even so, with so many other political issues taking priority, I doubt the problems inherent with drawdown freedoms will be addressed. It will be very much a case of “kicking the can down the road”.
These issues are, however, another ticking timebomb and sadly the full consequences will not come to fruition for many until it’s far too late.
Tracey Evans is joint business owner and principal financial planner at Juno Wealth