A third of pensioners using invest-and-drawdown without cash buffer

More than 156,000 pensioners who keep their pot invested throughout retirement do not have a cash “safety net” in the event of a falling market, Zurich has found.

According to the study of 660 people, more than one-third of pensioners who are using invest-and-drawdown have no cash buffer, while only 8 per cent of the remaining two-thirds who do have a cash reserve would think about using them.

In the Financial Conduct Authority’s (FCA) September 2018 data bulletin, 435,769 people have put their pension into drawdown since October 2015, meaning approximately 156,876 people could be without adequate reserves.

Zurich head of retail platform strategy, Alistair Wilson, said: “A staggering number of retirees appear to be in the dark over how to protect their pensions if stock markets tumble.

"Withdrawing the same level of income in a downturn could take a bigger bite out of your pension fund - yet it’s a trap that’s easily avoided.”

By holding money from inside their pension in a volatile market, pensioners are not forced to sell investments at lower prices when stock prices drop, which could damage the future growth of the pension pot.

Putting aside two years’ worth of living expenses, diversifying your investments and scaling back withdrawals could reduce the need to sell investments if prices start falling, according to Wilson.

Furthermore, the survey found that 62 per cent of retirees would have sufficient cash to pay the bills for two years, while 21 per cent said that they could only survive for six months or less.

In the event of a market correction, 49 per cent said they would continue withdrawing the same amount, compared to 12 percent who would scale back and 15 per cent who said they did not know what they would do.

“It’s good to regularly check you’re not taking more income than you need and that your pension is well-diversified. If markets tumble, it pays to be more cautious by scaling back your income, or turning off the taps altogether,” Wilson added.

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