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UK savers risk retirement income

10 December 2020

UK savers are taking greater risks with their retirement income than their European counterparts by opting for drawdown with limited financial understanding, findings from Aegon have revealed

According to Aegon’s global retirement survey only just over a quarter (28%) of workers in the UK plan to convert all their savings into an annuity, compared to 47% of people in the Netherlands, 44% in Germany and 42% in Spain.

Despite this, fewer than one in five (17%) in the UK believe financial advice is valuable when converting their savings into a retirement income and less than one in ten (9%) would be willing to pay for it.

Aegon warned there is also a lack of financial awareness in the UK compared to other European countries. Less than a quarter (24%) of those surveyed were able to answer three basic financial literacy questions about interest rates, inflation and basic investment concepts. In contrast, this figure was 41% in Germany, 32% in Spain and 29% in the Netherlands.

Steven Cameron, pensions director, Aegon, said: “The Covid pandemic has been financially challenging for many, with particularly significant issues for those approaching or in retirement. Many face the choice between an annuity where rates, which follow interest rates, are at an all-time low, or remaining invested and drawing an income when market volatility has been particularly high. Making and updating decisions about the level of income to take and reviewing drawdown investments are key to prevent running out of money.

“People often assume that taking a DIY approach and managing financial decisions themselves will be fine, but the findings of our financial literacy test suggests there are huge risks in taking complex decisions alone. While advice has to be paid for, the cost of not taking it ahead of some of life’s greatest financial decisions could be far higher.”

The three questions asked were:

1. Suppose you had £100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

• More than £102

• Exactly £102

• Less than £102

• Do not know

• Refuse to answer

2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?

• More than today

• Exactly the same

• Less than today

• Do not know

• Refuse to answer

3. Please tell me whether this statement is true or false. “Buying a single company’s stock usually provides a safer return than a stock mutual fund.”

• True

• False

• Do not know

• Refuse to answer

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