In Focus: Tax Year End  

Managing clients’ pension investment anxiety

  • To consider the implications of a high-risk retirement investment strategy for affluent investors.
  • To understand savers' concerns around retirement investing.
  • To understand how to help pension savers navigate the current economic uncertainty.
Managing clients’ pension investment anxiety
More pensioners are putting their savings in higher risk investments (Image credit: Andrea Piacquadio/Pexels)

The introduction of the pension freedoms legislation in 2015 completely changed Britons’ approach to pensions, and in the current economic environment many are opting for riskier strategies. 

Under pension freedoms people have been more inclined to explore alternative forms of pension saving to ensure their money is working as hard as possible. As a result, we are seeing more and more individuals withdrawing a proportion of their pension once they reach the age of 55 and placing it in investments.

Interestingly, this trend is particularly popular among more affluent individuals. Indeed, a recent survey commissioned by My Pension Expert of 550 UK adults with investments worth in excess of £50,000 (excluding their primary property and any savings) showed that more than two-fifths (42 per cent) of wealthy pension planners preferred to invest their money in assets outside of traditional savings accounts or pension pots.

This might suggest that wealthier individuals feel their money is more secure when placed in investments. It is vital for advisers to understand why this is the case.

What is driving appetite for investment?

There are several factors that have influenced the growing popularity of investments as a retirement savings strategy.

The government’s changes to pension taxation have certainly played a part. For example, in the spring Budget 2021, chancellor Rishi Sunak announced that the lifetime saving allowance would be capped at £1,073,100.

This decision essentially limited the amount an individual can save for retirement in a traditional pension, as exceeding the limit would result in a substantial tax bill. Indeed, this decision caused significant concern among affluent Britons.

According to the above research, more than a fifth (22 per cent) of wealthier individuals claimed the capping of the lifetime allowance had prompted them to adjust their retirement strategy.

A similar number (19 per cent) claimed they had already been subjected to unexpected tax charges since the announcement was made.

Adding to the financial pressure is rising inflation, which is expected to reach 7 per cent by April 2022. This rising cost of living will inevitably mean that people’s retirement savings are unlikely to go as far as many would have initially hoped.

Worryingly, half of wealthy savers consider rising inflation to be a major threat to their retirement strategy.

And of course, the continued disruption of the Covid-19 pandemic remains a prime concern among wealthy pension planners; 48 per cent are worried about how it will impact their retirement savings.

With the constant threat of further turmoil ahead, fuelled by the emergence of new variants and spiralling economic conditions, it is little wonder that their confidence has been knocked.

As such, more than a third (34 per cent) of affluent Britons claimed to be in a weaker financial position than they were at the beginning of the pandemic, when it comes to their retirement finances.