Last month the Bank of England base rate dropped to 0.25 percent, the first cut since 2009 and a record low. For those with money in the bank, it was bad news; interest rates are now lower than inflation, meaning money is depreciating the longer it sits in a savings account. And for those saving for their pension, it’s another worry to add to the list.
A number of factors have combined to put pressure on the state pension scheme, especially since the 2008 financial crisis. Increased life expectancy and falling fertility rates have combined to mean the European population aged 65 and over is expected to rise to 30 percent by 2040.
Despite government reassurance that UK national debt is falling, at the end of 2015 it stood at a staggering 84 percent of GDP – the highest level since 1967. In an era of austerity the government have been looking to save in any area of welfare they can, meaning pensions are likely to take a further hit.
And this has already started to happen. New state pension rules that came into force earlier this year mean that to be entitled to the full amount, Britons must have paid national insurance for at least 35 years. Equally, the introduction of auto-enrolment into workplace pensions means that employers must now enrol eligible employees into their workplace pension. This is clearly one way of passing the responsibility of pensions onto employers rather than the state.
In the light of the current climate, it is no wonder that Britons are turning to alternative investments and private pension schemes to supplement their weakening state pension. Research conducted by Aviva in 2015 found that Briton’s aged over 45 expect their pension funds to generate an average of £12,590 per year of their retirement – so what options are there to help achieve this?
Asset management
Investment management company ATI advocate the use of asset management services to make the most of retirement funds. Like many others in the industry, ATI offer a range of open-ended funds covering global and regional equities, fixed income and multi-asset portfolios. According to OECD data, the assets under management of UK asset managers accounted for around 50 percent of GDP in 1980. In 2010 that figure was 270 percent – the industry has grown more than fivefold in 30 years. The demand for asset management products is set to increase further as more and more people look at ways to maximise their savings.
Use of online platforms
ATI investment analyst Chris Foster highlights the importance of online platforms when looking at ways to make the most of retirement savings. He says:
“Platforms – online portals that allow consumers (or their advisers) to manage investments – are becoming an increasingly important part of private investment. Today, 80 percent of private investor assets are on platform, up from 37 percent in 2007. The benefits are obvious: reducing costs, making administration of investments easier, and providing opportunities for retail investors to access asset classes they would otherwise not be able to.”