As it is no longer compulsory for pensioners to buy an annuity, and with an increase in longevity, pensioners should take more risks with their investments, claims Jupiter.
It argues with life expectancy increasing, thousands of pensioners are investing on a time frame of more than 20 years with at least part of their retirement savings.
Because of this, it suggests they do not need to put all of their money into low risk, low return assets, such as gilts and should, instead, consider investing in equity funds to provide capital growth and income.
But Jupiter warns this strategy would require regular review in order to guard against capital erosion and to ensure minimum income requirements, so it suggests investors consider a “layer cake” approach to pensions investment, by which they can phase their investment plans to coincide with different stages of retirement.
Colin Maloney, director of pensions at Jupiter, says the concept everyone must rush to seek refuge in bonds whenever they reach retirement age should itself be pensioned off.
He points to the fact at 60 or 65, people are still making plans for the medium to long-term, and while they may need access to some funds immediately, others should be managed on a much longer time frame.
Maloney adds: “We know many people are leading active, adventurous lives in their sixties, before they do have to consider settling into a more peaceful old age. Their financial arrangements can reflect that too.”
John Lawson, head of pensions policy at Standard Life, says he agrees there is a big trick being missed at the moment, as there are other opportunities to do better than annuities backed by bonds and gilts.
He adds: “You can get a much better yield out of other assets such as equities and property. Obviously these are quite volatile, not in income yields which are quite stable, but in asset prices. But the market has to find ways to hedge out risks and find a compelling case for people to take income drawdown.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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