According to a new report, Drawdown: Is it working for consumers? from Zurich UK, women in drawdown face a 37% shortfall in their annual retirement income compared to men, leaving them more than £47,000 worse off. The study also warns of a potential new gender gap in drawdown, with a range of factors including lack of advice, placing more women at risk of outliving their savings.
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The report found men in drawdown have an average pension pot of £212,000, which at a 3% yield secures an annual income of £6,360. Women have an average pension pot of £132,000, equating to an income of just £3,990. This means women have £2,370 less per year and would need to find riskier investments yielding 5% to match the retirement income of their male counterparts. Longer life expectancy also means they need to stretch out their pot over a longer period. A woman retiring at aged 65, can expect to receive £47,400 less income over a typical 20 year retirement[1].
The report - the first and largest study of its kind to explore the impact of drawdown on almost 750 people since the pension freedoms – also reveals the potential emergence of a new ‘gender drawdown gap’. It found that 41% of women switching into drawdown have no investment experience compared to 29% of men. Women are also more likely to never review and adjust their investments in drawdown (17% vs 10%) and twice as likely (13% vs 6%) to never check the performance of their portfolio.
The findings from Zurich UK come as the FCA’s review reveals drawdown sales are now twice that of annuity sales. The FCA also found some consumers are not fully engaging with the guidance available from pension providers, potentially putting themselves at risk of harm.
Rose St Louis of Zurich UK comments: “Women already face barriers to securing a comfortable retirement income, and it’s no longer just down to the pay gap or career breaks. Pension freedom has given people far greater choice in how they access and spend their retirement savings, but there are clearly unintended consequences emerging. For women, a smaller pot at retirement combined with a longer life expectancy means investing wisely is crucial. If consumers are less engaged with their pension then they are at risk of making poorer decisions that could result in a lower income, or even outliving their savings. For both men and women, the need for financial advice and guidance in retirement is greater than ever.”
The report also found gaps in the guidance being sought, with women five times more likely than men to rely on their partner (22% vs 4%) – potentially leaving them more vulnerable, should their significant other pass away or lose mental capacity. Furthermore, fewer than a third (32%) of women are getting ongoing financial advice, yet reported lower levels of confidence in handling drawdown without it.
Nevertheless, the study reveals the overall popularity of drawdown. Eight in ten (81%) people who have moved into drawdown since the pension reforms would make the same decision again.
Other areas of concern highlighted in the Drawdown report include:
• The ‘first-time investor’ gap: there is a clear gap in the take-up of advice and guidance among first-time investors. A third of consumers (32%) making up the highest proportion of those in drawdown, have never actively invested in the stock market. Despite this, 41% have not received guidance and are either not currently receiving advice or have never received advice.
• The ‘sustainability’ gap: there was initial evidence that consumers could be making poor choices over their withdrawal strategy. Two in five (41%) of those in drawdown are withdrawing the same amount regardless of how the stock market has performed
Zurich UK Drawdown - Is it working for consumers
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