05/07/2018
Why cash isn’t always king when it comes to retirement
Pensioners are over-investing in cash when withdrawing funds from their pensions, which can affect their living standards in retirement.
Solely or predominantly investing savings in cash can be detrimental as cash has historically generated much lower returns that other asset classes. Lower returns mean savers will likely have smaller pension pots to live on.
Research from the Financial Conduct Authority (FCA) has found that consumers could increase their annual income by over a third if they invested in a mix of assets, rather than just cash, over a 20-year period.
Obtaining the right advice when withdrawing, or thinking of withdrawing, from pensions is therefore key. The FCA has revealed that 33% of savers who do not take advice end up investing all of the funds they withdraw into cash or ‘cash-like’ assets.
A significant contributor to this over-investment in cash is that pension providers don’t offer savers an ‘active’ choice of what to do with their funds when they withdraw and instead default funds straight into cash. Many savers remain unaware this has even happened.
In response, the FCA has launched a consultation to address this over-investment. It proposes introducing the following measures:
- Ensuring savers make the ‘active’ choice of investing in cash, rather than doing so by default
- Providing warnings to savers about investing mostly in cash or cash-like investments
- Contacting savers if they remain invested mainly in cash for a year
The chief City regulator this week warned that thousands of retirement savers are at risk because they have not made good use of the pension freedoms introduced three years ago. Until then, most...
