Thousands of retirement savers have become first-time investors by taking advantage of pension freedoms – but few know how to gain the best return from their money.
More than 500,000 people aged 55 and over have triggered pension freedoms to withdraw money from their retirement savings, but a third have no stock market investment experience.
Few have taken professional financial advice even though they have average retirement saving pots of £153,000 to invest, according to research by financial firm Zurich UK.
The firm is warning that this lack of advice and guidance is costing retirement savers money – and if they spend too much, too soon, they could exhaust their savings too early in retirement.
No hands-on experience
Alistair Wilson, a pensions expert at Zurich, said: “As double the number of people choose drawdown over annuities, Britons clearly favour the freedom and flexibility, but the issue is that many appear to be underestimating its complexity.
“In the build-up to retirement, many savers rely on pension firms to make investment decisions on their behalf, meaning many have no hands-on investment experience when they take control of their pot. For retirees not getting advice or guidance, there is a danger they could end up picking the wrong investments or taking money out of their pot too quickly.
“This is putting a worrying number of people at risk of running out of money in retirement.”
Poor investment decisions
The research suggests poor investment decisions lead to:
- Putting money in investments that are too risky
- Missing out on investment growth
- Withdrawing too much money
The study reveals 10% of adults rely on internet advice to make their investments, while 20% get their expertise from magazines and newspapers. Only 35% approach a professional adviser, while 44% say they would never consult an adviser.
“Understanding what can be done to encourage consumers to seek financial advice or guidance is crucial to helping retirees secure a decent, lifelong income,” said Wilson.
“The government should reconsider the case for introducing mandatory guidance for drawdown, requiring people not getting regulated financial advice to opt either in or out of receiving guidance before accessing their pension.
“We would also like to see the new single financial guidance body offer free drawdown MOTs to help consumers not getting advice check they are on track in drawdown.”