Pension ‘de-risking’ is no longer the default option as you approach retirement

For many years, the widely-held view has been that clients approaching retirement should reduce their investment risk. In the days of limited life expectancy and compulsory annuity purchase, it was logical to reduce risk ahead of ‘purchasing’ a pension income.

However, with the Financial Conduct Authority (FCA) reporting that two-thirds of people are now opting for pension drawdown, is it time to change that approach?

‘De-risking’ could actually reduce your pension income

Now that people have far greater decision-making power over how to spend, save or invest their own pensions, many are choosing drawdown. This allows investors to take money from their pot gradually over the course of their retirement.

In the past, as you approached retirement you would move your pension savings from stock market investments into bonds and cash. Now, though, could you be better staying in stocks and shares?

Six years ago, US expert Robert Arnott questioned the wisdom of ‘de-risking’ as you approached retirement.

Using three different examples and evidence from more than 140 years of historical returns, Arnott discovered that even in the worst-case scenario, the person increasing their risk in later years entered their retirement with a higher fund value.

Research from Professional Adviserhas produced similar results. They took two investors who saved an average of £20,000 a year from the age of 30 to 60, retired and then began withdrawing an annual pension of £60,000 a year.

The first client invested in a moderately cautious portfolio generating 4% a year on average after costs and fees, while her less cautious client generated 5% a year through a balanced portfolio. The moderately cautious investor ran out of money at nearly 86, at which point the balanced investor still had £800,000.

Even using a worst-case scenario (incorporating the 2008/9 crash), the cautious investor ran out of money four years before the balanced investor.

Even a modest change can significantly affect your returns

So why could it be better to continue in stock-market investments as you approach retirement?

The answer partly lies in compound returns. When your pension fund is at its largest – as you approach retirement – it can pay to maintain the risk you are taking to benefit from the returns.

And, Professional Adviserfound that it takes only a modest difference in risk to achieve remarkably different outcomes. It might be as little as a move from a moderately cautious to a balanced profile.

Take advice on your pension funds

A separate FCA report has underlined the need for you to take professional advice regarding your pension savings. As more people stay invested in their pensions for longer they are likely to both take benefits andkeep their fund invested.

The FCA found that one in three non-advised drawdown consumers is wholly holding cash. They concluded that someone drawing down their pot over a 20-year period could increase their expected annual income by 37% by investing in a mix of assets rather than just cash.

What this means is that so-called ‘lifestyling’ is no longer the default option for pension savers.

Indeed, the government-backed Pensions Advisory Service says: “Lifestyling may be suitable for you if you’re intending to purchase an annuity when you retire … It’s unlikely to be suitable if you intend to keep your retirement pot invested and to use income drawdown.”

Perhaps it’s time to think differently. If you’re looking for a Financial Planner or IFA, we offer free consultations in London or Epsom, Surrey.


Reviews and Ratings for Financial adviser Ray Martin, Kingston-upon-Thames

We’re highly rated

We retain a 5-star rating on VouchedFor, an independent service that enables clients to review their professional advisers. VouchedFor verifies the reviews and testimonials we receive, so you can be confident that they are authentic. 2018, 19, 20, 21, 22 and 23 Top Rated Adviser, as listed in The Times

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Our former financial adviser was retiring and recommended Ray to us. He alleviated the constant worry of where to best invest our savings without too much risk. We’re very pleased with the results over the last 10 years. He explains things in layman's language, which we appreciate, and gives us the confidence we have made the right choices. What more can people expect?


We had pension policies and investments that needed sorting out ready for retirement. We didn't know what to expect from a financial adviser. We assumed that he would simply advise us where to get the best deals. How wrong we were. Ray took us right back to basics. He made us carefully consider what we really wanted to achieve. He has allowed us to start to really enjoy our retirement.


I needed financial advice about pensions and investments as I approached retirement. My wife was in the same position. Ray Martin worked out a comprehensive plan for putting my pension provision and savings into proper order. He did the same for my wife. He has continued to provide us with advice ever since. Ray is always straightforward, open and proactive.


I was approaching retirement and wanting to look into limiting taxation and Inheritance Tax, as well as providing for my wife. Ray provided sound advice to switch from my current arrangement to a Drawdown Pension and ISA investments. I have now retired and have started seeing the benefits of his advice. The returns on my portfolio have increased beyond expectation. Ray performed extremely well.


I had sold my house and didn't know how to invest the money. Ray invested very wisely and there has been about a 5% increase every year. He listened to our queries, gave answers that we fully understood and followed any requests. He always had time for us, and never rushed us. We would have been financially at a loss without his help.


Ray has been advising my wife and me for about 20 years. He is everything one could hope for in a financial adviser: wonderfully enthusiastic, extremely well informed, completely trustworthy and scrupulously observant of the regulatory requirements. He is able to explain complex matters very clearly, and so far, his advice has always been first class.


I had money to invest and had no idea how to go about investing it and hopefully making a gain. I have three children and wanted advice about inheritance planning. Ray is very patient, very clear when he explains things, he is very interested in me as a person, totally trustworthy and is an excellent listener. We have never been disappointed! He`s been brilliant.


I had just been widowed. Ray sorted out and simplified what was a very complex set of investments into a much less confusing portfolio. I have been extremely happy with everything Ray has advised over the last 12 years. Whilst moving with the times, he has dealt with all aspects of my investments wisely and given me all the guidance and help I have needed.


As the financial director of a company, I was seeking to get advice on how to plan and invest for retirement. Without a doubt, Ray Martin helped me understand and plan how to fund my retirement. Ray has been with me every step of the way. His advice has been invaluable. I retired and achieved my annual income goal. His continued advice is helping me in the next stage of my life.


I needed some advice regarding my late mother’s estate. I had also retired and required advice on how to manage my private pension. Ray was extremely helpful, and his advice was very clear and easy to understand. I came away from our initial meeting feeling very relieved and less stressed. We have just had our first yearly review and I was surprised how well my investments had done.


In the last 10 years, my circumstances have changed with the passage of time. Ray has guided me on how to protect and make my money grow. He listens carefully to my needs and gives clear, concise advice in a professional manner. He and his team are always accessible and patient with my questions and their approach gives me confidence that my finances are securely looked after.


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