A study by Dunstan Thomas shows that 51% of people aged 54-71 have not told their pension providers whether their retirement plans have changed since they first took out the policy.
Why does that matter?
De-risking is a process carried out by pension providers to reduce the investment risks of funds due to be accessed by the policy owner. It is a practice which became popular to ensure that people who planned to buy an Annuity with their pension fund see less movement in its value. However, now that Annuities are becoming less popular, the practice is less relevant.
Providers tend to de-risk pension funds five years prior to the owner’s intended retirement age. This involves moving the money into lower risk investments. This helps to protect the value of the pension fund from stock market crashes, but it can mean that growth is restricted.
Flexi-Access Drawdown is now a far more popular option. With this option, an income is drawn, and the rest of the fund remains invested. This means that de-risking makes very little sense for many people coming up to retirement age.
Updating your information on time
The study shows that, when Baby Boomers originally entered into a pension arrangement:
- 72% of women expected to be fully retired by the age of 60
- 52% of men expected to leave work by the age of 65
By that logic, if they have not updated their intended retirement age with their pension provider, their savings are likely to have been de-risked five years prior to those ages.
Of course, many people entered their pension plans up to 40 years ago, and circumstances have changed since then. Now 56% of all Baby Boomers expect to continue working past the age of 66.
We now have more flexible options for withdrawing pensions. For some, an Annuity may be right, but for others, Flexi-access Drawdown is the answer.
It is important to ensure that decisions made many years ago, don’t affect your options during retirement. We can help you to check whether your pension provider has a de-risking policy, and make sure that it is used in the most appropriate way for you.
Contact us for a more in-depth discussion.