Sounding like a trendy financial move to help boost retirement finances with a low risk strategy, fears are growing that huge numbers of pensioners are risking a chunk of their cash in high-risk investments.
Alarms bells are sounding over ‘lifestyling’, which is aimed at helping make a pension pot more secure as the saver nears their retirement age.
However, increasing numbers of financial advisers believe that lifestyling is seeing pension firms move those pots to overpriced and riskier investments.
The switch is popular and is often chosen by retirement savers wanting to protect their savings.
It works by the pension provider removing regular amounts of cash out of shares to invest into other assets which are meant to be safer but it now appears that those ‘safer’ investments are not safe at all.
Shares and bonds
That means that lifestyling in general is also risky.
Now a survey of financial advisers conducted by Axa Life Europe reveals that many believe that lifestyling pensions is a riskier strategy than it was a year ago.
They say the issue is that pension funds are moving money from shares into government bonds, which is a source of concern for economists and financial experts.
Essentially, bonds are sold by companies and governments to cover loans from pension savers and investors and are meant as a low-risk investment.
Bond prices are relatively expensive because so many people have been buying them, and this demand has driven up prices to a point where they may be ready to collapse.
Devastating fall
In addition, the prices are artificially fuelled because governments have been printing money through quantitative easing and using that cash to buy the bonds.
This means that pension savers who automatically opted to have their pension lifestyled in a bid to make it safer are probably putting their pension pot at greater risk because they are moving into overpriced investments.
The real issue could be for those savers who are looking to retire in the near future. Their fund may be over exposed to bonds which, if they crash, will leave the saver with a fraction of the amount they have saved.
Advisers are now promoting alternative methods to lifestyling, and they say that once a pension saver has enough money in their pot for their needs, plus a little extra to account for future inflation, they should move their investments out of bonds and shares and into cash.
While the investor may miss out on future profits, they will be reassured that their pension pot is locked down and protected from any possibility of a devastating fall in bond prices.
