As policymakers and politicians stress the need for higher returns on pension savings, the City of London is being pressured to embrace more risk-taking to avoid a full-blown retirement crisis.
This does not constitute advice and advice should be sought in all instances before acting on it.
Britain’s retirement crisis is a result of regulatory failures, undersaving, and inaction from fund managers. Chancellor Jeremy Hunt is setting out to maximise returns by unlocking billions of pounds held in British funds and investing them in infrastructure and start-ups. The Chancellor’s strategy aims to create a virtuous cycle of improved returns, enhanced economic growth, and reduced reliance on foreign investment.
Sir Jonathan Symonds, an advisor to the Chancellor on pension funds, questions the UK’s reliance on imported capital for economic growth and points out the disparities in investing compared to counterparts in Canada. Symonds blames the policymakers and private sector for not delivering sufficient returns due to adopting an overly cautious investment approach, particularly impacting defined contribution (DC) scheme members.
Defined contribution schemes have only generated an average of 6% per year for the last 10 years. In the same time period, Canadian schemes have achieved double-digit returns, an indication that the UK needs to step up its game when it comes to investments. The solution to mitigate risky investments is, as always, diversification. Sir Jonathan also emphasises the importance of being aware of the impact that people’s investment choices can have on retirement funds.
There is also discussion about whether or not investing in certain asset classes should become compulsory, with mandatory backing of riskier funds, like those with start-ups, coming up against opposition. A better strategy, according to experts, would be to focus on incentives rather than mandates. Chancellor Hunt will present the details of his vision in July’s Mansion House speech.
Will a push for increased risk-taking be the thing to resolve the retirement crisis and boost pension savings? Only time will tell, but if you want to check in and review your current retirement plans to ensure you are still on track, get in touch with your trusted financial adviser. The experts at Dental & Medical Financial Services can suggest strategies to maximise your retirement savings, no matter what the wider economy looks like – contact us for more information.