Thousands of over 65s are at the mercy of money market fluctuations as they have their income linked to stocks and shares.
Although most investors aged over 65 years old consider they conservative investors who do not take risks, one in three have their income impacted by rising or falling stock markets.
And this number is set to rise, argues financial provider Aegon, as more investors switch way from final salary pensions or take up pension freedom options.
The Aegon report found 72% of over 65s described their investment strategy as ‘risk averse’, yet 30% still had savings linked to stock market investments.
The firm reckons this is a start of a trend of older savers relying increasingly on risky investments for their retirement incomes.
Pension freedom comes at a price
The change is blamed on pension freedoms introduced in April 2015.
Flexible access to pensions allows anyone over 55 years old to draw their pension savings as if the money was in the bank.
But, says the firm, this means more savings are tied to investments that expose them to stock market fluctuation as the value of shares, bonds and funds can vary over time.
This was not a problem for earlier generations as they typically bought a guaranteed annuity providing a fixed income for life.
Steven Cameron, Aegon’s pensions director, said: “There’s been a clear shift in the retirement income market, with people increasingly opting for drawdown over annuities at retirement.
Investment risk is a challenge
“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 most 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.”
Cameron also argues that some over 65s would find guaranteed drawdown a better income source than flexible access to pension savings.
“While pension freedoms have heralded a new era of flexibility, retirees can still opt for security without having to purchase an annuity,” he said.
“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.”