Cautious investors demand new pension products

Cautious investors demand new pension products

Despite the government’s pension reforms giving people freedom to invest where they wish, there has been a strong preference for low-risk pension solutions among the over-55s.

The financial crisis, and the low-interest environment that followed, have significantly changed people’s appetite for risk, meaning that people approaching retirement do not want to take a risk with their money, Nick Dixon has claimed.

The investment director for Aegon UK claimed that research by the life and pension provider carried out this year among more than 1,000 UK adults found that 60 per cent of UK investors said they valued security.

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Mr Dixon said this need for caution among people approaching retirement was the rationale for Aegon’s new pension fund, which it launched at the beginning of October.

Called Retiready Stability, it allows people to preserve their pension savings but still receive better returns than bank deposits over the medium term.

The fund offers a balance between minimising risk and offering potential for beating cash returns. It is designed to offer some protection against the downside, so it is unlikely to fall more than 5 per cent in the event of a sudden market downturn.

It mitigates risk through broad diversification across four absolute return funds, investing in a mix of UK and overseas equities, bonds, commodities and alternative investments.

Also, according to the Aegon research, 32 per cent of people over 55 were even now more risk-averse as a result of the financial crash in 2007-2008 and, despite record low interest rates making it easier for people to pay off a mortgage, growth ambitions in this age group were conservative, with 40 per cent of people claiming they were investing in products that were designed to either keep pace with or slightly beat inflation.

Over the past month, other providers have sought to create pension funds that offer a degree of caution. For example, Partnership recently launched the Enhanced Retirement Account, to provide customers with access to a guaranteed income while providing flexibility of drawdown and a chance for growth.

Jupiter Asset Management also launched its Enhanced Distribution mixed-asset income fund, which invests in stocks and bonds and aims to provide a regular income for investors following retirement as well as people looking for capital growth.

Adviser view

Mel Kenny, an IFA at London-based Radcliffe and Newlands, said: “Clients want the maximum possible return for the least possible risk, which is the million-dollar problem. I think there are two distinct groups in this age group – those who have accumulated a fair amount of assets and are happy to preserve what they have, but there are also some people out there who are unable to amass what they would like and for them it’s the age-old problem of needing to grow their money at a level beyond the risk they are able to take.”