Home Finance Fears of retirement funds falling short spark surge in high-risk investments

Fears of retirement funds falling short spark surge in high-risk investments

An increasing number of people say they are willing to turn to more risky investments to help fund their old age.

People appear to have been triggered into action by alarming recent reports that many older people face the prospect of running out of cash in old age.

More people in their 50s and approaching retirement are apparently willing to use their pension savings to invest in more risky investments in the hope of making higher returns, according to experts at Saltus. The express revealed the pension pot crisis earlier this week.

Figures from the Financial Conduct Authority (FCA) revealed that savers pulled money out of almost 750,000 pension pots in the 2022/23 tax year as they battled to survive the cost-of-living crisis.

Of these, 420,727 pots were completely emptied, an increase of six percent from 395,235 the previous year.

Many raided their pots to cover everyday bills during the cost-of-living crisis, or cope with spiralling mortgage rates.

Against this background, Megan Jenkins, Partner and Chartered Financial Planner at Saltus, said people are rethinking their investment strategies – taking greater risks in the hope of building a bigger pension pot.

She said: “Covid and the period post-Covid have had an impact on attitude towards risk.

“The last three years have been fairly sideways (in terms of return on investments) and so it has made people reassess how much risk they are prepared to take.

“Some clients feel more cautious, but the opposite is also true. This is especially true if they have time on their side and are, for example, ten years or so away from retiring.

“In their minds, they feel they have lost three years to make the most of the returns on their investments.”

Miss Jenkins said: “There’s almost an expectation that they’re going to fall short of their retirement objectives because of what’s going on in the world at the moment.

“Consequently, I’ve had a lot of clients (around 50 percent in recent weeks) thinking about taking more risk with their investments.”

She added: “Clients who have been taking a lower level of risk with their investments are now reassessing whether that’s the correct course of action.

“A key part is understanding you have to be prepared to ride out any volatility in the market and the same applies with taking more risk: you might generate more return, but also, you might see larger swings in the short term. You have to be really comfortable with that.”

She said many people have concentrated on keeping their savings – for example those held in ISAs – in cash. But she suggested much stronger returns will come by investing in shares in the years ahead.

“In the short term, yes there are more interesting returns available on cash but the reality is that returns on cash over the last five years remain woeful. I’d be extremely surprised if cash outpaces equity over the next five years.

“Cash is for your short-term liquidity needs not to generate long term returns.”


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