Salisbury House Wealth

Why cash isn’t always king when it comes to retirement

Pensioners are over-investing in cash when withdrawing funds from their pensions, which can affect their living standards in retirement.

Solely or predominantly investing savings in cash can be detrimental as cash has historically generated much lower returns that other asset classes. Lower returns mean savers will likely have smaller pension pots to live on.

Research from the Financial Conduct Authority (FCA) has found that consumers could increase their annual income by over a third if they invested in a mix of assets, rather than just cash, over a 20-year period.

Obtaining the right advice when withdrawing, or thinking of withdrawing, from pensions is therefore key. The FCA has revealed that 33% of savers who do not take advice end up investing all of the funds they withdraw into cash or ‘cash-like’ assets.

A significant contributor to this over-investment in cash is that pension providers don’t offer savers an ‘active’ choice of what to do with their funds when they withdraw and instead default funds straight into cash. Many savers remain unaware this has even happened.

In response, the FCA has launched a consultation to address this over-investment. It proposes introducing the following measures:
- Ensuring savers make the ‘active’ choice of investing in cash, rather than doing so by default
- Providing warnings to savers about investing mostly in cash or cash-like investments
- Contacting savers if they remain invested mainly in cash for a year

Some of us are paying too much for pension freedoms The chief City regulator this week warned that thousands of retirement savers are at risk because they have not made good use of the pension freedoms introduced three years ago. Until then, most...

Over-investment in by savers withdrawing funds from can lead to a lower income later in life - cash underperforms all asset classes. This is massively overlooked and we welcome the latest proposals. Read more from us in The Times:

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The amount of money invested into UK businesses through the Enterprise Investment Scheme (EIS), one of the more tax efficient ways for people to invest in early-stage growth companies, has fallen for the first time since 2010-11.

As a result of the Government restricting EIS use, it is more important than ever for investors to take up their full allowance of other tax efficient investment opportunities such as ISAs and pensions.

New HMRC statistics show that the number of businesses raising money through the Enterprise Investment Scheme (EIS) for the first time has fallen by 27%. Businesses using EIS for the first time raised £1.05bn in 2015-16, but this dropped to £768m in 2016-17. The overall amount of money raised has also fallen by 8% in the past year, from £1.95bn to £1.8bn.

EIS offers tax relief on investments into smaller, high-risk businesses to encourage investors to back certain SMEs. Individuals can invest up to £1m in a tax year and receive 30% tax relief on their investment.

The Government risks turning increasing numbers of investors away from the popular scheme by imposing further restrictions on the type of companies that are eligible for EIS.

Sales of stocks and shares have increased by nearly 300,000 in the last year, as investors look for better returns amidst low interest rates. Read Tim Holmes in moneyfacts.co.uk

Sales of stocks & shares ISAs soar - Investments - News | moneyfacts.co.uk Sales of stocks & shares ISAs soar news from moneyfacts.co.uk. Bringing you the latest sales of stocks & shares isas soar & financial news & reviews of the best products in the UK by our team of money experts.

Record number of people are transferring out of schemes into schemes. See Tim Holmes, Managing Director of Salisbury House Wealth comment in the FT

Record number of savers abandon final salary pension schemes Amount transferred out to defined contribution plans jumps to £20.8bn in 2017