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Client concerns around retirement shifting, say advisers

2 April 2019

As the pension freedoms approach their fourth birthday, new research by Aegon shows a complex and evolving retirement landscape, with retirees’ priorities shifting as many take advantage of the greater flexibility offered by the freedoms. 

Thirty-eight percent of advisers surveyed said running out of money was the greatest concern of their clients, while 32% said their clients are worried they won’t be in a position to fund the lifestyle they would like in later life.

When asked about the most common challenges clients face, advisers said how to create a retirement income (75%) topped the list, followed by understanding all the options available for them to invest their money (64%) and saving enough for retirement (54%).

Since the introduction of pension freedoms in 2015, advised clients have preferred to enter drawdown rather than take an annuity or use cash. Three fifths (60%) of advisers said their retiring clients hold 75% or more of their assets in income drawdown. The research also showed that 82% of retiring clients hold a quarter of less of their assets in annuities, and an even greater proportion (89%) of advisers said their clients hold a quarter or less in cash.

Yet, despite the increased freedom the change in legislation has brought with it, Aegon said retirees continue to be cautious and sensible in their approach. 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%).

Interestingly, Aegon’s research suggested that retirees are also adopting a more fluid approach to when and how they retire. Nearly three quarters (74%) of advisers said 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 one fifth (20%) of advisers said that clients are going straight from their usual work pattern to full retirement.

Nick Dixon, investment director, Aegon, said: “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.”

Professional Paraplanner