Pensions - Articles - Nervous retirees seek advice on pension freedoms flexibility

As we approach the fourth anniversary of pension freedoms, Aegon research carried out among 250 advisers, shows the varied, complex and evolving retirement landscape, with retirees’ priorities shifting as many take advantage of being able to choose how and when they retire.

 With the freedom retirees now have when it comes to accessing pension funds, 38% of advisers said running out of money was the greatest concern of their clients. 32% of advisers said their clients are worried that they won’t be able to have the lifestyle they’d like in later life.

 With pension freedoms providing greater flexibility and choice, retirees are looking to advisers for help with managing money in retirement. When asked about the most common challenges their clients’ face, advisers said that how to create a retirement income (75%), understanding all the options available for them to invest their money (64%) and saving enough for retirement (54%) were top of the list.

 Since the introduction of pension freedoms, advised clients are preferring to enter drawdown rather than take an annuity or use cash[i]. 60% of advisers said their retiring clients hold three quarters or more of their assets in income drawdown. Research shows that 82% of retiring clients hold a quarter or less of their assets in annuities, and an even higher 89% of advisers said their clients hold a quarter or less in cash.

 However, despite the freedom on offer, retirees are overall opting to be cautious and considered. Over half (53%) of advisers said their clients prioritise risk reduction over generating high returns (13%) or preserving the size of annuity they will be able to buy in the future (7%). A third (33%) of retiring clients’ assets are invested in multi-asset strategies, favoured for their diversification, simplicity and ease of use.

 Reflecting the evolving preferences of retirees, a significant proportion of advised clients (36%) are opting to retire ‘early’ or ‘late’, either before they are 60 or after age 66, suggesting that retirees are adopting a more fluid approach to when and how they retire. A high proportion of three quarters (74%) of advisers said that their clients are now choosing to retire gradually by transitioning into retirement through a period of reduced hours or semi-retirement before stopping work completely. Just 20% of advisers said that clients are going straight from their usual work pattern to full retirement.

 Nick Dixon, Investment Director at Aegon comments: “The world of work is changing fast and retirement is increasingly a journey of change rather than an event. Since the introduction of pension freedoms, we’ve also seen a behavioural shift in the way retirees are choosing to take income in retirement. The freedoms have enabled individuals to adopt a more flexible transition into retirement, with people accessing pension savings to support a reduced working pattern. Our research shows that, with the flexibility, advisers are finding that clients are relying on them to guide them in the decisions they make, as many retirees fear running out of money. It is crucial, that those at or approaching retirement seek financial advice to help build confidence and manage their money.”

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