In Focus: Retirement Income  

Pandemic savings and new investors give boost to Sipps

 

More individuals have been investing their pandemic savings into pensions and Isas, analysis from Interactive Investor has confirmed.

While an approximate £140bn has been saved by Britons since March 2020, when the first lockdown began in the fight against Covid-19, data from II indicates savings have not been left idle in bank accounts, subject to the vagaries of inflation.

Instead, people have been putting it to work in pensions and Isas.

The II investor index has been showing that while the top holdings have remained fairly consistent over the course of the pandemic, the percentage of cash has also remained consistently low, at 10 per cent across the board and 8 per cent in the 65+ age group.

To Rebecca O'Connor, head of pensions and savings for II, this indicates people are remaining invested in the markets, rather than sitting on swathes of cash, and are doing so well into their retirement years.

Moreover, people have also been putting more aside into self-invested personal pensions and Isas. "We have seen a trend of younger investors and women, too, investing more into Sipps," she said.

In the latest Fireside Chat, O'Connor told FTAdviser In Focus that people have also been moving away from traditional sources of income, such as high dividend-paying UK stocks, over the course of the pandemic.

This was driven in part by the regulator urging banks to withhold dividend payments in 2020, and many companies cutting or suspending dividends as markets tanked last year, as well a lack of confidence over UK equity income funds.

She said: "There has been a general trend to look for alternatives, and some of these have been global equity income funds as people seek to diversify. There has also been a clear move towards emerging market bond funds.

"People do want to avoid having to draw on their capital when they reach a certain age, and it seems like the list of income-generating options has been narrowing. But hopefully this is starting to change.

"Other alternative assets would include infrastructure and Asia as a geographic region. Fidelity Global Dividend has been popular in this context too."

O'Connor also discussed the recently launched study, produced in partnership with consultancy LCP, called 'Is 12 per cent the new 8 per cent?'. This presented a stark warning to at least 10m workplace pension savers that they are not saving enough to secure a decent retirement.

She said: "This relates to the forecast future growth in stock markets. Back in 2007, the then Financial Services Authority was using annual real return forecasts of 4.2 per cent on pension statements, and by 2017 this had come down to 2.4 per cent. 

"To some people, these are just numbers, but clearly it makes a huge difference to the pot size you end up with. It is scary that your retirement outcome is determined by something over which you have so little control.