Generally speaking, I\u2019m not a huge fan of risky moves. I would rather wait an extra hour at the airport than stress over missing a flight, I find it hard to negotiate on price for fear of losing a deal completely and I refuse to get behind the wheel if I\u2019ve had a single drink.<\/p>\n
With all these decisions, the anxiety caused by the potential loss outweighs any positive that the risk brings. Rushing through security to walk straight on to a flight may be exhilarating for some, but my heart rate would still be elevated when I landed at my destination.<\/p>\n
There is one area, however, where I\u2019m simply going to have to take more risk: my pension pot. As a young (ish) saver, the safest thing to do is to assume that the entire responsibility of funding my retirement will fall to me. And that requires more risk.<\/p>\n
This week the work and pensions secretary, Liz Kendall, said she was \u201cformally announcing\u201d the next government review of the state pension age. As the last review concluded in 2023 \u2014 and the government only has to review the age every six years \u2014 this was earlier than expected.<\/p>\n
It\u2019s looking likely that the age at which you get your state pension will rise sooner than planned. The state pension age is 66, increasing to 67 between 2026 and 2028. Another jump to 68 is pencilled in for 2046, but will probably be moved forward.<\/p>\n
To assume that the state pension age will stay at 68 by the time I get there (in about 38 years) would be foolish. In fact, to assume there will be any state pension at all is unwise.<\/p>\n
The state pension is a financial headache for the government. It costs about 5 per cent of GDP, up from about 3.5 per cent in the year 2000, according to the Office for Budget Responsibility (OBR), and is forecast to be 7.7 per cent by 2070.<\/p>\n
It\u2019s also getting harder to find the cash to fund it. People are living longer and having fewer babies \u2014 aka future taxpayers. The UK\u2019s old-age dependency ratio, the population aged 65 and over as a percentage of those of working-age (16 to 64), is set to increase from about 33 to 50 by the mid-2060s, according to the OBR.<\/p>\n
So my private pension is going to have to do the heavy lifting in my retirement \u2014 at least if I want to stop working before I\u2019m 75. And the easiest and cheapest way to boost my pot is to increase my level of investment risk. <\/p>\n
\u2022 How to get a nation of savers investing<\/a><\/p>\n \u201cIt\u2019s important for younger savers to take risks with their pension \u2014 that just means investing in the stock market, not taking a punt on bitcoin. If you have 30 or 40 years until retirement, your pension should be heavily, if not exclusively, invested in shares,\u201d said Laith Khalaf from the investment firm AJ Bell. <\/p>\n \u201cThe exception would be if you have a nervous disposition and can\u2019t bear to see a fall in the value of your savings. Even then, the fact that you are saving regularly into a pension means you get a smoother journey even with a relatively high content invested in the stock market.\u201d<\/p>\n Historically, the stock market has provided the best investment returns in the long run. If, 30 years ago, you had invested \u00a31,000 in the Investment Association\u2019s global sector of funds that are invested entirely in stocks, you would have \u00a38,150 today.<\/p>\n The sector of funds that are 40 to 85 per cent invested in the stock market would have returned \u00a35,657, while the 20 to 60 per cent stocks option would have returned \u00a34,362.<\/p>\n But most pensions are not invested in 100 per cent equities, even for workers who are just starting out. Most pension savers are automatically enrolled into workplace pensions and put into \u201cdefault\u201d funds \u2014 a one-size-fits-all option that has to be appropriate for 20-year-olds and 50-year-olds.<\/p>\n This means that many default funds will only have about 60 to 70 per cent of their pot invested in shares. The rest will be in assets such as cash or bonds, that are considered less volatile but are also unlikely to grow at the same rate. Effectively, these pots are simply the least worst fit for the workforce as a whole.<\/p>\n