Investors approaching retirement say that they do not plan on taking advantage of the new pension freedoms. According to a survey by Schroders, 70% of investors say the recent pension reforms will not affect their plans for retirement income.
Despite the initial positive reaction to George Osborne’s pension freedoms announcement in last year’s Budget, the majority of investors admitted they were confused as to how the changes will benefit them – and what their new income options in retirement were. A fifth of investors are worried about the tax implications should they drawdown a lump sum from their retirement pot and more than 10% said that they did not have pension savings.
Robin Stoakley, managing director UK Intermediary at Schroders said that investors should take advice if they do not understand the recent changes.
“The investment possibilities for pre and post retirement are extensive and it’s important for people to understand what it means for them,” he said. “Good financial planning and advice will help with this.”
Of the 30% of investors who are planning on taking advantage of the new freedoms, the majority of savers said they will take some cash – 25% of your pension is available to withdraw tax free – and put the remainder into an investment product.
One in three said that they would use part of the money to fund a luxury expense such as a holiday and a similar number plan to use their pension to pay off debts.
The Importance of Diversification, by Dan Kemp
Diversification is too often mistaken for historic correlation as solving an equation is easier than thinking. Simply because assets have not been correlated in the recent past does not mean that they will continue to offer diversification benefits in the future.
Consequently, a correlation based approach can lead to investors overpaying for an attractive track record. This is especially true now where investors are using expensive government bonds to protect their portfolio against a fall in the price of expensive equities.
In reality, expensive assets tend to revert to fair value over the long term and so real diversification can only be achieved by including attractively valued assets and strategies that benefit from different performance drivers. To achieve this in current market conditions, portfolio managers need a realistic view of future returns and a research approach that covers a broad range of conventional and alternative assets.
