UK investors expect to stay in markets for 19 years after retirement, finds Legg Mason survey
UK savers plan to stay invested in markets for almost two decades after they retire, amid fears they could run out of money or see their income eroded by low rates or inflation, an exclusive survey by global asset manager Legg Mason has found.
Highlighting the extent to which investors may need to take advantage of forthcoming pension changes which scrap the requirement to purchase an annuity, the survey reveals that, on average, British investors anticipate staying invested for 19 years after they stop working.
With the average life span currently at 79 years for males and 82 years for females, people are expecting to invest more for longer in order to sustain their lifestyle.
A chief concern for UK savers is interest rates. The survey, which polled more than 4,000 investors across 20 countries, reveals that 44% of British investors see the low interest rate environment as a major threat to their retirement plans, a higher percentage than anywhere else in Europe and well above the global average of 33%. In contrast, only 22% of US investors are concerned about low interest rates, for example.
Perhaps unsurprisingly, UK investors also fear the return of inflation following an unprecedented spell of benign price increases and quantitative easing. Inflation is cited as a key risk by 32% of UK investors, the highest in Europe, although the figure is below the global average of 49%.
British investors’ fourth-biggest concern is a global market correction, cited by 27% of respondents. UK investors are, however, more sanguine about this prospect than their counterparts in European countries including Switzerland (37%), Spain (30%), Belgium (31%) and Germany (29%). Worldwide, investors are far more concerned than their European peers about a market pullback, with 41% of investors globally (29% in the US) highlighting this as a major fear.
Finally, when it comes to concerns about running out of money in retirement, UK investors are far more worried than their equivalents in Europe, as well as investors around the world.
A quarter of UK investors (25%) say living longer than their funds will last is a key risk which threatens their post-retirement plans; far higher than investors in Spain (9%), Sweden (12%), Germany (14%) and France (14%), but below those in the US (32%). On average, 23% of global investors fear outliving their retirement funds.
Adam Gent, Head of UK Sales at Legg Mason, says: “Staying invested for a further 19 years after retiring sounds like a long time, but the reality is people are living longer and therefore savings have to work harder.
“With the demise of more favourable defined benefit schemes, and a move from relying on the state to taking control of your own retirement, it is no wonder people are planning to stay invested well into their retirement.”
While UK investors plan to stay invested for almost 20 years on average, many are not anticipating making radical changes to their investment strategies. Almost half (46%) say they are unlikely to make any major changes to their existing investment portfolio when they enter retirement, while 25% plan to move into equity income funds. Despite expectations of increased demand for multi-asset funds, only 15% of investors say they are likely to buy one when they retire, while even fewer (12%) expect to purchase a ‘go anywhere’ strategic bond / fixed income fund.
Gent adds: “Since the government announced it was scrapping the compulsion to buy an annuity the industry has been trying to understand how investors plan to fund their retirement in light of the new freedoms. It is fascinating to find that savers not only plan to remain invested in markets, but that they expect do so for such a significant length of time – reflecting their concerns they could outlive their funds or see their retirement income eroded over time by inflation and low interest rates.
“It is very interesting to observe that almost half of investors have no plans to change their portfolio in retirement and only 15% of them expect to buy a multi-asset fund. That may come as a surprise to an industry that is shifting towards multi-asset income solutions in the expectation that investors seeking annuity substitutes will favour these funds above most others.”