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02

Risk-averse attitudes undermining savings success, says Pensions Institute

Open-access content Wednesday 19th February 2014 — updated 5.13pm, Wednesday 29th April 2020

UK workers would rather take a hit on their retirement income than take a risk to generate potentially larger returns, the Pensions Institute said today as it urged people to pay more attention to their long-term financial goals

In a survey examining savers' attitudes to risk and savings strategies, the institute found that savers do not tend to think about risk in an integrated way, especially when it comes to long-term risk. Findings were collated in the Pensions Institute's How do savers think and respond to risk? report, which was supported by Santander Asset Management and Moody's Analytics.

More than half (52%) of the 154 Britons polled failed to properly think through their savings and investment needs and would prefer to suffer an income shortfall than take any risk to meet their savings goals. Only 10% said they would be prepared to increase risk for potential greater reward.  

The Pensions Institute argued that investment risk was an unavoidable feature of any long-term savings plan and branded these attitudes 'reckless conservatism'.

It recommended that savers consider the trade-offs they would need to make whilst saving for their retirement and urged advisers to help savers better understand risk and savings holistically. 

David Blake, director at the institute, said people tended to have a very poor sense of the time dimension of their lives. 'Most people cannot think further than a week [ahead], some people can only think about the holiday next summer,' he said. 

'But I would actually say most people cannot think what five years ahead, ten years, fifteen years ahead or twenty years ahead means in any sense that allows them to then say, "I must not spend so much now in order to save for my retirement".'  

Blake added that people did not understand the 'adequacy' of the amount that they need to save in any significant way. 'We have lost the savings habit in this country [compared to] Scandinavian countries and Japan [where they have a high savings ratio].'

Santander's commercial director Rob Askham said the survey findings presented clear lessons for investment managers and advisers. 

'We need to help savers understand risk, and the consequences of not taking any risk with their savings. We need to provide cost-effective investment products that help them become confident enough to put their money to work and help meet their long-term financial goals.'


This article appeared in our February 2014 issue of The Actuary.
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