As many as 10 million savers could have their retirement funds decimated and be forced to work beyond retirement age as major pension providers are switching their money into higher risk investments.
Following the introduction of the Government’s new pension freedoms last year major UK insurers including Friends Provident, Old Mutual, and Zurich are revamping savers’ investments in a bid to improve their retirement prospects.
However, it has emerged that the new-style funds could leave millions of savers vulnerable to losing large sums just before they plan to retire.
This is because they assume that savers can now afford to hold racier investments in the years close to their retirement as a result of using bank-account pensions to leave their money invested for years and drawing an income.
Figures from the UK’s Financial Conduct Authority (FCA) show most savers are not leaving money invested and can therefore not afford to hold risky investments, which could suddenly fall in value at any time.
Instead two-thirds of people using the pension freedoms are cashing in 100% of their fund in a short space of time, while 13% of savers are using funds to buy guaranteed income in the form of an annuity.
Experts have warned savers choosing these options face ‘unpleasant’ consequences if their money is left invested in a higher-risk fund and stock markets fall in the later years of their working life.
Unfortunately expats who have taken advantage of the benefits of transferring a UK pension into either a SIPP (‘Self Invested Pension Plan), or a QROPS (‘Qualifying Recognised Overseas Pension Scheme’) may find their pension is at even greater risk due to high risk nature of many underlying investments held within their pension.
Esoteric investments, or structured notes held by many expats within their pension may promise an attractive return, but many clients who hold them, let alone ‘advisers’ who recommend them, fully understand the risks.
At best, many of these offshore investments are simply recommended on the basis of the latest investment trend, and at worst, to generate the maximum upfront commission for the ‘adviser’, with little if any heed given to a client’s risk preference. Many of these offshore investments not only under-perform, but pose a significant risk to an expat’s entire pension.
If a saver’s fund value drops significantly near retirement age and they were planning to cash in the money or buy an annuity, they may have to wait years for it to recover in value. This could mean working longer than planned which is clearly an unpleasant position to be in.
Previous arrangements were specifically designed to minimise the chance of losing money just before retirement, by investing in ultra-low risk assets such as bonds and cash.
In order that clients’ investments, and especially their retirement provisions meet their expectations, Intelligent Investments has spear headed the use of UK regulated discretionary fund managers for international clients, providing a low cost solution, with greater transparency without hidden commissions, and managing clients’ portfolios in line with both their risk preference as well as expectation of return.