Drawdown remains the ‘dominant’ retirement strategy despite annuity rates improving, new research from Aegon has found.
The 200 advisers surveyed said that over two-thirds of retirees’ assets (67%) are invested in drawdown strategies, with 40% of these in multi-asset funds.
Although drawdown is still the most popular option, 46% of advisers said they had seen an increase in the number of clients choosing to take an annuity.
Despite this, only 11% of client assets are held within annuities.
Meanwhile, 54% of advisers said more clients are choosing to delay their retirement, and 32% have received more client requests to reduce their retirement income.
However, 70% recommend that concerned clients stick to their existing financial plan.
This is far greater than the second-most common recommendation, with only 9% suggesting their clients should switch investments.
While inflation is now returning to target levels and economic performance slowly improves, findings from Aegon’s latest Adviser attitudes report show how recent financial challenges have been impacting financial advisers and their clients.
Of the 200 advisers surveyed, 33% reported having received an increase in queries from clients since 2021, with 58% of requests coming from clients over the age of 55.
Lorna Blyth, managing director of investment proposition at Aegon, said: “Our research shows that the UK’s savers and retirees have been struggling to catch up after three years of significant financial challenges.
“Professional financial advice is a hugely valuable part of financial planning, but never is this more apparent than in difficult economic times.
“The fact that a third of advisers have reported an increase in queries from their clients is further evidence of that, with the work done by advisers in the past few years having been a vital and appreciated support mechanism for many.”
Blythe said it was “not a huge surprise” that over-55s represent the bulk of queries posed to advisers, given many of them will likely be close to or in retirement.
She added that it was “interesting to see how recent times have changed advised client behaviour, too, particularly when it comes to delaying retirement”.
“As financial challenges have mounted, many pre-retirees may have been concerned that their savings would be unable to meet rising costs now, let alone in the future.
“The result is a greater proportion of advisers seeing their clients choose to continue earning and saving for longer, possibly until they feel their retirement income will be sustainable.
“With interest rates having been much higher, it’s also not necessarily a surprise that 46% of advisers we spoke to have seen an increase in the number of clients choosing to purchase an annuity.
“However, despite becoming more popular, they still only represent 11% of the market by assets held.
“Considering many will have sought greater security during the recent challenges, you would have thought that if annuities were to have their day, it would be now – but it doesn’t quite seem to be the case.
“It’s clear that drawdown remains the dominant retirement strategy for most retirees.
“Retirement saving is a long-term game and making changes that benefit short-term needs could hurt your pension when you need it most in the future.
“This is a great example of advisers applying their expertise to produce better client outcomes.”
The research is based on the views of financial advisers from across the UK, with the research being conducted by Opinium between 8 and 15 January.
Ahh…drawdown – forever to be the sea anchor dragging annuities down… as the least medically fit want maximum flexibility and choice + IHT advanages, thus, depriving the annuity market of relatively low life expectancy cases, and leaving the healthier etc.
I am surprised that a ‘carry trade’ alternative to the existing somewhat narrow choice annuity market has not emerged. No choice of currencies, no non UK Govt. Gilts or Gilt substitutes (these used to be 5* commercial property…except M&G of course)…
Why not borrow in CHF at 2% on asset (house) + cash equivalent – say Capital Redemption Bond in CHF deposit – 5% (or much less) annual will pay loan interest… on death I have large debt to pay off so mitigating IHT at 40%…
+ my beneficiaries have an asset in a far away land in CHF not in my estate… BTW… the last time I lived in CH 2008/9, the exchange rate was around CHF2.30/GBP1.00… a bit less these days methinks…
The natural aversion to annuitisation is based on lack of flexibility and any (worthwhile) return of capital on death. For those for whom security of income is an important consideration and especially for those who qualify for an enhancement by virtue of ill health, an annuity can be the most suitable choice.
As the FCA and other naysayers love to point out (to others), the worst case scenario for IncDD is total consumption of the fund. BUT, subject to a prudent percentage level of withdrawals and regular fund reviews, has this EVER actually happened?
Much of the problem arises because it is always assumed that the pension is the sole asset. For those who have been more fortunate (astute?) and have other investments outside a pension, in addition to all its other advantages an annuity can be the cornerstone of retirement income, as these fortunate people have enough market risk outside a pension. Annuities are also very IHT efficient, something that is always overlooked. For many all this harping on the death benefits on drawdown rings a bit hollow. When you’re dead, your dead. If you haven’t made provision outside your pension that is just lack of planning. The definition of Pension is “Regular payment made during a person’s retirement”. Does that mean it has to have market risk and fluctuate? Impaired life isn’t the only other advantage. Annuities can be written in joint lives, so that the spouse doesn’t have to have an adviser hanging round their neck. Yes, the attraction of drawdown is a chimera foisted on the unsuspecting public by the financial services industry who see the lure of fees continuing. Governments too are happy as the tax trawl is generally greater with drawdown than with an annuity – until the money runs out and they fall onto state support.
Bad headline, implying that Drawdown is the dominant choice! The percentages are shifting. Have advisers forgotten that those smaller funds that were forced into Drawdown because of poor annuity rates are now moving to annuity and purchasing a secured income for life – the original purpose of pension saving.
So who is surprised? Most are suckers who will probably be on state benefits eventually. Just shows how the sales pressure from advisers, providers, fund managers, platforms etc has an effect. They are the ones who will make money out of this on an ongoing basis until the funds run out.