Pension savers are choosing passive funds and individual shares for their portfolios, and taking bigger tax-free sums earlier from their pots, as they navigate a changing retirement landscape.
This is the finding of a large pension study by Interactive Investor (ii), the UK’s second biggest investment platform with more than 500,000 customers.
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A changing pensions landscape
The findings come as pension savers grapple with a raft of upcoming changes. Pensions are set to be included in inheritance tax calculations from April 2027. A year later, in April 2028, the age at which you can start withdrawing money from your pension will rise from 55 to 57.
Meanwhile, the Autumn Budget announced that salary sacrifice pension contributions above £2,000 will face National Insurance from April 2029.
The run-up to last month’s Budget caused a rush among older pension savers to grab their tax-free cash in case the chancellor reduced it or introduced a cap. In the end, no changes were announced.
Interactive Investor’s study shows that customers took a slightly earlier and bigger tax-free lump sum on average this year, compared to its previous Sipp study, possibly due to worries over the Budget.
Looking ahead, Kyle Caldwell at Interactive Investor thinks investment trusts could come back into fashion.
He says that high interest rates have reduced demand for investment trusts while boosting demand for gilts and money market funds. “Another factor at play has been the continued strong performance of global stock markets, which has led some investors to seek out global ETFs, which provide the return of the market for a low fee.”
Caldwell notes: “While time will of course tell, the coming years could see increased appetite for investment trusts. Interest rates are falling, which could see investors increase risk in their pursuit of growing money in real terms given that this will dent the income attraction of lower risk assets like cash and bonds.”