Editorial: How individuals assess risk and reward is extremely complex. Data from the Office for National Statistics this week showed people would prefer to take a punt on property over pensions to deliver a retirement income.
Actually that’s not strictly true. Four in 10 believe employer pension schemes are the “safest” way to save for retirement and at the same time around 45 per cent say bricks and mortar will “make the most” of their money. Intent is not revealed but we can perhaps infer.
However the study, while avoiding the word ‘risk’ in its questions, exposed at least two different ways of viewing it – namely the risk inherent in surrendering some control to the rules of the pensions game, and the risk of not maximising returns.
At the very least people seem to understand there can be a greater level of certainty achieved via many forms of pension saving, whether that be from an annuity or some kind of drawdown product that aims to manage investment volatility.
But with most respondents shunning the notion that a pension is the way to “make the most” of their assets, it seems many still have strong doubts over whether the vehicles can be considered good value.
Illustration by Ben Jennings
People’s love of bricks and mortar is ingrained in our society, both reflected in and fuelled by the countless property shows you can catch on multiple TV channels at most hours of the day.
There’s something people trust and understand about tangible assets: if the stock market crashes pot values go down; if the housing market recedes you might end up in notional negative equity, but you don’t suddenly lose a bedroom as a result. The asset remains as is, and there is comfort in that.
Institutional investors are also relying on real assets to come through for them. All the signals are pointing towards greater appetite from UK pension funds for infrastructure investments, as demonstrated at the FT’s European Infrastructure event last week.
Those investors will have their own way of valuing the risks and rewards on offer. But whether individual or institution, the process is made more challenging by policy and systems being on such an uneven keel.
Maxine Kelly is editor at Pensions Expert. You can follow her on Twitter @MaxineEK and the team @pensions_expert
