Should savers diversify their pension?

In a changing retirement landscape, Andrew Megson, executive chairman of My Pension Expert, asks should savers diversify their pension?

gold piggy bank wearing glasses indicating pensions


Before the introduction of pension freedoms in 2015, retirement strategies were somewhat regimented. The majority of individuals saved into a traditional pension scheme, took out 25% as a tax-free lump sum upon retirement and used the remainder to purchase an annuity.

This was strongly encouraged by the pension tax legislation at the time and retirees largely followed suit, even if it did not suit their specific needs.

However, following the reforms, which granted pension planners the ability to withdraw all or part of their savings once they reached the age of 55, people’s attitudes changed. Equipped with a new autonomy, individuals started engaging with their retirement strategies in a whole host of new and creative ways. From investments and ISAs, to art and
classic cars, since 2015, annuities are no longer the order of the day.

Increasingly, people have opted to place their hard-earned cash elsewhere to save for retirement. Indeed, a recent survey of over 500 full-time workers over the age of 40, commissioned by My Pension Expert, confirms that this is the case. The findings reveal that 19% of over-40s expected the majority of their retirement to be funded by alternative investments rather than traditional pension schemes.

It is clear that savers are thinking outside the box when it comes to their retirement strategies. But where does this leave traditional pension schemes and products?

Adapting retirement strategies

Covid-19 has cast a dark shadow on the economy; the crisis has brought on a recession, causing the value of pension pots to fall.

Annuities might be the safest option in times like these, as they guarantee the security of a fixed income for life, irrespective of market fluctuations. However, interest rates currently sit at 0.1%, which has driven annuity rates to historic lows. So, savers might be concerned that they are not getting the best value for their money.

The aforementioned research reflects this, showing 17% of UK adults aged 40 and over withdrew part or all of their pension in response to the escalating crisis because they were losing value. Tellingly, over a fifth (22%) of over-40s have sought advice about diversifying their pension investments in the past 12 months, according to My Pension Expert.

However, whilst alternative investments can be a blessing for an individual’s pension strategy, they can also pose difficulties.

Keeping track of a multi-investment pension fund can be tricky business: a quarter (25%) of savers over age 40 admitted to losing track of their retirement savings. Meanwhile, the overwhelming majority (68%) stated that they do not check the progress of their investments on a monthly basis.

Such figures suggest that, whilst diversifying investments might be a sensible option for some, it is an unrealistic approach for others.

Next steps

For those interested in diversifying their investments, it is vital that all pension pots are tracked down and that individuals have a firm grip on their overall financial circumstances. Then, savers should be well-primed to decide on their appetite for risk.

Whatever savers decide, they should know that they don’t have to make these vital decisions alone. Pension planners can always elect to seek independent financial advice when making changes to their retirement strategies, and in effect, give themselves the best opportunity to enjoy a financially secure retirement.

*Andrew Megson [pictured above] is the Executive Chairman of My Pension Expert, the UK’s number one Advised Retirement Income Specialist. Founded in 2010, My Pension Expert specialises in providing independent advice to UK consumers about their pension plans – it arranges millions of pounds worth of retirement income options each week.

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