Client Affairs
Necessity, Pension Freedom Drive Older Investors To Take More Risk
.jpg)
Retirement planning is shifting as advisors and investors work out balancing risk with provisioning for longer lifespans.
Symptomatic of the growing problem of whether individuals and families will have enough savings when they retire, new research shows that retired investors are deciding to take more risks with their investments.
Nearly half are comfortable with keeping up to a third of their savings fully exposed in the stock market, according to a new poll by Liverpool based Seneca Investment Management which spoke with 201 UK advisors in March.
Statistics show that retirees are using a greater proportion of their earnings to fund their later life than previous generations such as the Baby Boomers. Mortality rates are increasing, and the scaling back of retirement benefits following pension fund relaxations in 2015 has also shifted responsibility away from the employer to individuals to make those provisions.
These factors have left financial advisors facing an income challenge as they look for ways to provide a sustainable income to cover retirements that are extending in years and growing in cost as care needs increase.
The study found that a third of advisors said they had recently retired clients with an even greater exposure (above 30 per cent) to the stock market than in previous years. The firm said this willingness to be more exposed was client-driven:
“Well over half (57 per cent) of advisors say that ‘what the client wants’ helps them quantify the appropriate level of sustainable income for their later life needs. With annuities and guarantees out of sync with advisors and clients regarding a sustainable income solution, other solutions are emerging. The cashflow matching model for more explicitly defined liabilities was the most popular method (53 per cent) used to quantify the appropriate level of sustainable income by over half of advisors surveyed (51 per cent)."
Steve Hunter, head of business development, Seneca IM, said: “The concern is that a significant proportion of current and incoming retirees are set to have less in their later life than their parents did, and this is only going to heighten as the pension freedom generation edge toward their retirement years.
“Our research suggests accumulation and decumulation are blurring, as advisors are telling us they are seeing some invested clients attitudes towards risk in later life increase rather than decrease." It bucks traditional thinking about the more conservative older investor as more of them are facing greater individual responsibility for funding retirements sustainably over a longer period of time.
But taking on more risk to achieve these goal does not mean making risky investments, Hunter cautioned. “Advisors can help their clients by encouraging them to take more control of their retirement provision, staying invested in the stock market, and identifying the funds most suitable to retirees who want a step up in risk profile without the risk of wiping out nest eggs."