David Thompson, managing director of business development and proposition, AXA Wealth, comments on the need to help people combat the four big retirement risks as the number of workers enrolled in pensions hits record high.
“It’s good to see some positive news about pensions for a change: recent figures from the Office for National Statistics (ONS) have shown that private pension membership is rising across all age groups in the UK and auto-enrolment has resulted in more than five million workers being brought into a workplace pension scheme1. It’s encouraging to see that Britain is beginning to adopt a long-term saving culture. And with the radical retirement reforms coming into force next month, we hope to see this trend for long-term saving continue, but in order for that to happen more needs to be done to help people understand and overcome the risks they face as they plan for their future.
“We’ve identified the four big financial risks people face in retirement2: longevity, volatility, inflation and a lack of flexibility, and will launch a new model to help advisers and their clients think about how much money they will need to pay for the things they want however long they live – as well as the things they need. Everyone wants to know that their essential items, like food and housing, are covered, but in the future, people in retirement will increasingly rely on their investments for income as their needs change and look for alternatives to cover their discretionary spending money.
“When it comes to investing in retirement, volatility and inflation pose a big risk. A diversified investment strategy can help to reduce the impact of market volatility over time, while a cash holding can be used to fund discretionary spend over the shorter-term so that people don’t have to worry about more immediate market movements. These investments also aim to provide asset growth over time to meet ongoing spending and aim to protect income from falling in real terms.
“Retirement is about doing more of the things you want to, things that you haven’t necessarily had time to do while working. Income generating funds, like the recently launched Diversified Global Income fund from Architas as well as their broader income fund range, can provide advisers and their clients with money to spend how they want.”
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