A third of drawdown users lack any investment experience but many of those do not seek any financial guidance or advice, Zurich research finds.
While 32% of people using drawdown admit they are first-time investors, many have accessed their on-average £153,000 pension through the income withdrawal product. Meanwhile, just two in five of these had sought regulated financial advice or guidance.
With the Financial Conduct Authority (FCA) reporting around 350,000 people had used pension freedoms to access drawdown between October 2015 and October 2017, the insurer warned this "first-time investor gap" was exacerbated by many drawdown users being over-confident in their abilities.
It found that nearly half of these "novice investors" felt drawdown would be simple, while 29% said they were confident about their investment decisions despite having never actively invested before.
Instead, its research found, one in 10 admitted that search engines were their primary source of information on drawdown, 20% used guidance from newspapers and magazines, and 35% used pension firms. Another 44% confessed nothing would prompt them to get advice or guidance.
The findings are based on a YouGov survey, conducted between December 2017 and January 2018, of 742 drawdown users who had used the pension freedoms.
Zurich head of retail platform strategy Alistair Wilson said savers risk selecting investments unsuitable for their retirement plans.
"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," he said. "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 retirement."
He called on the upcoming single financial guidance body - which will be formed by a merger of The Pensions Advisory Service, Money Advice Service, and Pension Wise - to provide mid-life MOTs as suggested in John Cridland's independent review of the state pension age last year.
The Work and Pensions Committee recently called for providers to be mandated to offer default drawdown pathways by April next year as "too many drawdown customers are not shopping around and do not understand their options for investing their savings".
More than half of BlackRock’s flagship UK defined contribution (DC) default fund’s assets will be invested in ESG strategies by June 2021.
Graeme Bold says the right communications can improve both the level of savings and the outcomes for savers.
More than half of UK savers agree they are unable to save sufficiently to achieve the retirement they want, according to research by BlackRock.
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