Savers Forced to Take Investment Risks in Retirement

Record low interest rates have forced pensioners out of cash and bonds and into riskier assets, new research from MetLife reveals

Emma Wall 3 February, 2017 | 4:40PM
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20 years ago, 10-year gilt yield was 8%, 10 years ago it was 5.2% and today it sits at 1.35%. The sharp drop in income from government bonds has had a significant impact on investors – in particular those in retirement. In 2007, investors arguably had fewer options in retirement. Prior to pension freedoms introduced two years ago, unless you could prove you could provide yourself with a sizable income from private means you had to buy an annuity at retirement.

The rate at which your pension pot was converted into an annual income was based in part on the 10-year gilt yield – not bad when it sits at 5.2%, even better when it peaked at 12% in 1990. But not when it falls to below 2% as the UK endured a prolonged period of record low interest rates. It was little wonder the government felt pressure to scrap compulsory annuity purchase, when they were forcing pensioners to lock into such low levels of income for life.

But while annuities may no longer be compulsory purchase, government bonds remain one of the safest sources of income, and safety is a characteristic investors in retirement look for. With bonds and cash paying next to nothing, retired investors have been forced to take on portfolio risk.

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Emma Wall  is former Senior International Editor for Morningstar

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