“However, it may be important to keep their investment risk constant in order to generate growth over the longer term in the attempt to make funds last longer and the level of desired income sustainable.”
Clients that are near or at retirement could look at increasing their investment risk or delay moving into less risky assets, but Church adds the consequences of doing so need to be fully understood.
“In isolation this could be a dangerous strategy, as if the monies run out there may not be a contingency fund to fall back on.
“If the pension pot is part of a wider investment strategy, there may be good reason to increase the risk of a pension pot that benefits from tax-efficient growth over, say, a taxable investment. Or another strategy could be to divide the assets and allocate different risk profiles.”
Toyosi Lewis, retirement investment specialist at FE Investments, a discretionary fund manager, also cites the common approach of having different ‘buckets’.
“One of the things that advisers have always done, and this is very common in the industry… some will say, ‘Let’s have a three-bucket type strategy’, which would be a short-term bucket, medium-term bucket and a long-term bucket.”
While inflation stretches retirement incomes, and pension savers who consequently take more risk could be rewarded with higher returns, Ernst Knacke, head of research at Shard Capital, a wealth and asset manager, believes inflation was “primarily a 2022 problem”.
The Bank of England has predicted inflation to fall quite quickly to around 5 per cent by the end of the year, and then meet the 2 per cent target by late 2024.
“The bigger risks that lie ahead are a recession, deflation and the risks of monetary devaluation,” says Knacke. “We expect governments and central banks to revert back to the strategy of money printing and monetary easing once economic weakness sets in.
“We believe a balance between gold and government bonds makes sense. Increasing exposure to higher risk, especially unprofitable equity, at this stage is the wrong approach in our opinion.
“Government bonds and gold can be diversified through alternative exposures into uncorrelated alternative investments, for example, inflation-linked infrastructure, managed futures or other uncorrelated absolute return strategies.”
What about increasing risk while accumulating during inflation?
Savers who are more than five years from retiring are more likely to benefit from a longer investment horizon.
And Lily Megson, policy director at My Pension Expert, cites research by the advice firm that found that 7 per cent of Britons considered moving their money into other investments to achieve higher returns and either match or beat inflation.
