Greater risk awareness is required for pensioners choosing flexible retirement options such as drawdown, Aegon has warned.

Aegon reported that almost three quarters, 72 per cent of retirees, class themselves as risk averse.

Nonetheless, it has been noted that the decline in defined benefit pensions and the increased take up of pension freedoms, is likely to cause the proportion of retirement income affected by stock market fluctuations to rise.

By choosing to take a drawdown option at retirement, savers are ultimately more exposed to stock market volatility as the value of their savings can continuously rise and fall.

While 72 per cent of today’s retirees believe they are risk averse with their retirement income, a further 51 per cent of over 65s said that they were willing to take no investment risk with their retirement income.

Moreover, 29 per cent of individuals over 65 currently have some of their income linked to the stock market. This number is set to increase as more retirees have less of a DB pension and an increasing number of savers with DC pensions opt for drawdown instead of annuities.

Since the introduction of the pension freedoms in April 2015, flexi access drawdown, which keeps savers’ pensions invested in the stock market while allowing them to take an income has overtaken annuities.

This trend “represents a fundamental challenge to risk averse retirees” Aegon has said.

Aegon pensions director Steven Cameron commented: “There’s been a clear shift in the retirement income market, with people increasingly opting for drawdown over annuities at retirement.

"Today the number of over 65s with exposure to the stock market is relatively low but we fully expect this figure to rise over time as people have less of a defined benefit pension and opt for flexible retirement income products. Given the majority of retirees remain cautious about investment risk, there’s a real challenge for the industry to ensure people are comfortable with their post-retirement investments with financial advisers crucial in helping their clients invest in line with their appetite for risk.

“While the pension freedoms have heralded a new era of flexibility, retirees can still opt for security without having to purchase an annuity. Guarantees can be added to drawdown policies to ensure a set income for life regardless of stock market performance. These drawdown with guarantees products offer flexibility but with insurance against market downturns.”

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