Warning as retirement pots suffer

SAVERS risk running out of money in retirement because pension funds are being badly invested.

Pensioners who take a tax-free lump sum and go into income drawdown – which leaves the rest invested in funds that provide an income – are finding their money is no longer in the stock market.

A new report by the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) warns some drawdown providers default funds into cash or cash-like assets, meaning savers risk missing out on valuable stock market returns.

Part of the problem is that, according to FCA data, a third of those who had gone into drawdown did not know where their money was invested, and another third had just a ‘broad’ idea.

Mark Dampier, head of investment research at Hargreaves Lansdown, said: ‘It’s not a smart move to be in cash over long periods of time. Drawdown is a sophisticated vehicle and you need to be on the ball about how your money is invested.’

The report highlighted the dangers of underestimating the length of time retirement income needs to last, as well as the escalating cost of long-term care.

The FCA and TPR also announced a fresh investigation into the pension industry next year.