Why investing remains important throughout retirement


An increasing number of retirees are choosing to take money out of their pension to use as income rather than opt for an Annuity or leave it invested within their pension fund. But putting the money into cash assets could mean you risk losing out in the long run.

It’s understandable that investment risk can seem like a gamble when you’re in your retirement years, whether it’s invested through your pension fund or you’re taking control of investment decisions. However, keeping at least a portion of your pension invested should be a consideration. In most cases, it’s advisable to keep the majority of your pension invested if you don’t need access to the funds in the short term.

The Financial Conduct Authority (FCA) estimates that retirees who accessed their pension to put the money into cash assets could be losing out on returns of 37% over a 20-year period when compared to the money remaining invested in a mix of assets.

The above assumes an asset mix of 50% equities, 20% government bonds, 20% corporate bonds, 7% property, and 3% cash, for which the publication can be found here. Of course, the actual amount of income available depends on the person’s personal circumstances and the variable rates of return.

With Pension Freedoms giving retirees more flexibility around how and when they access their pension, it’s more important than ever to think about how the money will continue to grow.

When investing your pension savings, remaining with your pension fund provides you with a tax-efficient way to grow your pot and potentially create an inheritance for your loved ones. Pensions offer a range of risk profiles, allowing you to align how your pension is invested with your personal expectations. If you’re worried about investment risk, a more ‘cautious’ approach can be taken.

The FCA figures suggest:

  • One-third of retirees that didn’t seek financial advice are holding the money they took out of their pension in cash
  • Over half of these risk losing out because of this decision
  • Over a 20-year period, investing the money taken from a pension to a mix of assets can increase its value by 37%, when compared to cash

Having spent decades building up your pension, it’s natural to want to limit risk once you’ve given up work. But leaving your money invested should be something you still look at with your long-term financial security and plan in mind.

If you’re unsure about leaving your retirement provisions invested once you’ve given up work, here are three reasons to think about investing.

1. Beat inflation

One of the core reasons for leaving your pension invested over holding your money in cash is inflation.

The Bank of England base interest rate is still low at 0.75%. And for many savers, that means struggling to find products where interest keeps pace with inflation. Inflation in August 2018 was 2.4% (CPI). If your savings aren’t in an account that offers an interest that matches this, your money is decreasing in value in real terms.

Leaving your money invested within a pension can help you keep pace with inflation or even it. If you’re considering withdrawing money from your pension, speaking to a financial planner can help you understand how this will affect your spending power as inflation eats into it.

If your sole aim is to retain value, rather than increase it, you don’t have to take high levels of investment risk either.

2. Growth is important as life expectancy rises

Just a few decades ago, your pension wouldn’t have needed to last as long. Today it’s not uncommon to spend 30 or even 40 years in retirement.

With retirement lasting longer, the money built up needs to stretch further. Continuing to invest the cash you’ve built up while working is a way to add more to your retirement provisions once you’ve handed in your notice. It can mean the difference between running out of money in your later years and having enough to comfortably live on.

On top of this, as you’ll likely be in retirement for longer, you’re able to take more risk with your money. As a general rule, you should be looking to invest for at least five years. This allows you to ride out temporary dips in the market. So, with retirement lasting longer, you’re in a better position to invest than past generations too.

It’s common for pension funds to gradually move you to a more ‘cautious’ risk profile as you near your retirement date. But with life expectancy in mind, it may be more appropriate to retain a higher level of risk. Get in contact with us today to understand how your personal retirement aspirations and provisions may influence your risk level.#

3. Cover the potential cost of care

Have you made any provisions for paying for care in your later years? The number of over 85s that need round the clock care is set to double in the next 20 years, according to research from Newcastle University.

It’s predicted that 446,000 people aged over 85 will need constant care and more than one million over 65 will too. Even if you don’t require 24-hour care, it’s likely you’ll need support at some stage. If it’s not an area your loved ones can help with, the cost can quickly mount up.

If it’s not something you’ve already considered, it could mean your expenses during later retirement years are considerably higher than planned. Retaining investments could provide you with a solution.

If you’d like to review your pension and investment strategy as you approach or are in retirement, you can contact us today. Through assessing your capacity for risk, overall aspirations and more, we’ll help you create a financial plan with you in mind.

Note: The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.