Drawdown Regrets ‘putting Pension Freedoms at Risk’

• More than one in five admit they didn’t understand the risks of conventional drawdown and more than in one 10 are unhappy with their choice
• Nearly half of specialist advisers report a rise in drawdown losses 

Drawdown regrets are putting pension freedoms at risk with savers who invested in drawdown unhappy with their choice while others admit they did not understand the risks before buying, new research* from MetLife shows.

Its study* among savers who have taken out conventional drawdown found more than one in five (21%) admit they did not understand the risks they were taking while 11% say they now regret their choice. Around one in eight (12%) say they regret not taking advice before investing in drawdown.

The biggest fear for new drawdown investors is the risk of volatility – nearly half (49%) are worried about future investment market volatility while 51% are banking on growth to boost their funds. Research among specialist advisers** shows they are right to worry – nearly half of advisers (48%) report a rise in the number of drawdown clients suffering cuts to income and capital. On average advisers across the country say 25% of clients have suffered drawdown losses.

MetLife is supporting a drive to ensure savers understand all the choices available to them and has launched a campaign for Real Pension Freedom supported by advisers and focusing on the valuable role guarantees can play in retirement. The first full year of pension freedoms has seen a rush to conventional drawdown with around 90,700 savers investing in plans compared with just 6,700 in the first three months of 2014***.

But MetLife warns consumer needs for real pension freedom are not being served by the rush to drawdown and believes the industry needs to ensure that all options including guarantees are considered during retirement conversations.

Simon Massey, Wealth Management Director at MetLife UK said: “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.

“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.

“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.”

MetLife research**** with over-40s in the run-up to retirement shows around 58% of them do not understand the risks of conventional drawdown and nearly half (45%) are worried that a lack of guaranteed choices is driving people to take risks with their funds.

The study among pension savers showed 40% would consider investing in solutions which offer a combination of guaranteed income for life and protection against stock market volatility.

MetLife’s range of retirement and investment solutions have been designed to deliver a guaranteed level of income for life in retirement, or a guaranteed capital amount at the end of a chosen term. MetLife’s Retirement Portfolio, which was designed for pension freedoms, and its stocks and shares ISA Portfolio, provide a choice of income and capital guarantees.

Customers can choose from a range of investments to build a personalised plan suited to the levels of risk they are willing to take, while having the choice of a valuable guaranteed level of income for life from age 55 or a guaranteed capital sum at the end of their chosen term.

In addition, the plans offer the potential for clients to increase the value of their guarantee through daily lock-ins of investment gains while enabling savers to start, stop and restart their income to suit their personal needs.

• More than one in five admit they didn’t understand the risks of conventional drawdown and more than in one 10 are unhappy with their choice
• Nearly half of specialist advisers report a rise in drawdown losses 

Drawdown regrets are putting pension freedoms at risk with savers who invested in drawdown unhappy with their choice while others admit they did not understand the risks before buying, new research* from MetLife shows.

Its study* among savers who have taken out conventional drawdown found more than one in five (21%) admit they did not understand the risks they were taking while 11% say they now regret their choice. Around one in eight (12%) say they regret not taking advice before investing in drawdown.

The biggest fear for new drawdown investors is the risk of volatility – nearly half (49%) are worried about future investment market volatility while 51% are banking on growth to boost their funds. Research among specialist advisers** shows they are right to worry – nearly half of advisers (48%) report a rise in the number of drawdown clients suffering cuts to income and capital. On average advisers across the country say 25% of clients have suffered drawdown losses.

MetLife is supporting a drive to ensure savers understand all the choices available to them and has launched a campaign for Real Pension Freedom supported by advisers and focusing on the valuable role guarantees can play in retirement. The first full year of pension freedoms has seen a rush to conventional drawdown with around 90,700 savers investing in plans compared with just 6,700 in the first three months of 2014***.

But MetLife warns consumer needs for real pension freedom are not being served by the rush to drawdown and believes the industry needs to ensure that all options including guarantees are considered during retirement conversations.

Simon Massey, Wealth Management Director at MetLife UK said: “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.

“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.

“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.”

MetLife research**** with over-40s in the run-up to retirement shows around 58% of them do not understand the risks of conventional drawdown and nearly half (45%) are worried that a lack of guaranteed choices is driving people to take risks with their funds.

The study among pension savers showed 40% would consider investing in solutions which offer a combination of guaranteed income for life and protection against stock market volatility.

MetLife’s range of retirement and investment solutions have been designed to deliver a guaranteed level of income for life in retirement, or a guaranteed capital amount at the end of a chosen term. MetLife’s Retirement Portfolio, which was designed for pension freedoms, and its stocks and shares ISA Portfolio, provide a choice of income and capital guarantees.

Customers can choose from a range of investments to build a personalised plan suited to the levels of risk they are willing to take, while having the choice of a valuable guaranteed level of income for life from age 55 or a guaranteed capital sum at the end of their chosen term.

In addition, the plans offer the potential for clients to increase the value of their guarantee through daily lock-ins of investment gains while enabling savers to start, stop and restart their income to suit their personal needs.