Retirees prioritise flexibility over annuities, report finds

Written by Marek Handzel
10/07/18

Flexibility is the number one priority for retirees when it comes to managing their savings, Aegon has found.

In a survey, 54 per cent of advisers have told Aegon that their clients’ number one priority in retirement is flexibility. Risk reduction was the second most important factor, with 33 per cent identifying it as clients’ most pressing concern.

The findings chime with the number of people who are embracing pension freedoms. The FCA’s Retirement Outcomes Review, published in July 2017, found that twice as many pots were going into drawdown than annuities.

Aegon has said that the emphasis on flexibility is a consequence of pension freedoms and a function of demographic and social change. The former has led to retirement being viewed as a process rather than a fixed event, while the latter involves improving health and increased financial challenges.

However, the insurer has warned that the trade-off and possible conflict created by juggling flexibility and risk reduction when managing retirement finances is nor easily understood by many investors. It said that many retirees would need advice to help navigate them through these competing requirements.

Aegon’s research has also discovered that the rise in income drawdown is accompanied by growing interest in highly diversified strategies.

Over two-thirds (67.6 per cent) of retiree assets are being allocated to multi-asset and diversified equity strategies. Traditional retirement instruments such as fixed income, annuities and guarantees now account for only 22 per cent of a typical retiring clients’ portfolio.

Aegon investment director, Nick Dixon, said: “Pension freedoms have paved the way for retirees to adopt a new attitude and approach to how they manage income in retirement. Our research shows that flexibility is the watchword for retiring clients, in how they access their money, their level of income, and the investment strategy they adopt.

“Demand for advice is rising driven both by the structural shift away from annuities and by the competing needs of investors who require expert advice to help manage complex trade offs,” he added.

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