Three-year growth in adequate retirement saving steadies
Nobody knows quite what the future holds. Changing life plans and priorities will mean we encounter varying income needs and goals throughout our life, and when saving for retirement certain innate behavioural traits will influence our decision-making. Savings levels in the UK are showing signs of steadying at the same time as the number of people expecting to receive a defined benefit (DB) pension continues to fall[1].

While the proportion of people saving adequately for retirement, buoyed by the introduction of auto-enrolment, had been on an upward trajectory since 2013, in 2016 the number stayed static year-on-year at 56%.

Disengaged from the realities of retirement
Despite the decline of DB schemes underscoring the vital importance of saving for the future, the proportion of people not saving at all remains at one in five; a slight drop to 18% this year from 19% in 2015. In addition, the mean age at which people think they can comfortably afford to begin saving for retirement has risen in the past year, to 29.3 years from 28.9 years – at the same time, the age at which most would like to retire at has fallen to 62.5 years from 62.7 years last year. The average income people believe they will need for a comfortable retirement has also increased to £23,990, up from £23,254 in 2015.

40-somethings save less as 30-somethings catch up
This year’s research revealed a troubling trend among those in the 40–49-year-old age group. Jointly with those aged 30–39, they have the lowest adequate savings levels (53%). This marks the first time that savers in their 30s are preparing for retirement as well as those in their 40s – despite the fact they have an additional decade of earning potential. Furthermore, while the proportion of adequate savers in their 30s has risen from 52% in the past 12 months, among those in their 40s this figure has dropped from 57%. The number of non-savers in their 40s is also up to 19% this year from 16% in 2015, despite the fact that, on average, there are fewer people not saving this year compared to last.

Success of auto-enrolment still evident
In spite of steady savings levels across the board, auto-enrolment is likely to play a positive role in the coming years, with current figures reflecting levels of savings made by many at the very start of their saving journey. When excluding those who have a defined benefit pension (i.e. looking only at those covered by auto-enrolment), the proportion of people saving adequately has actually increased in the past 12 months to 43% from 39%.

The impact of auto-enrolment is also clear when looking at the non-savers: women (24%), the self-employed (24%), and those working for small businesses (25%) are all disproportionately not saving – three groups who are either currently less likely to be eligible for auto-enrolment, or yet to feel the full benefit of the relatively new legislation.

Brexit may cause confidence to dip – but intention to save is positive
When it comes to the impact of the EU Referendum result, 31% of people pre-Brexit said they felt optimistic about their retirement – this fell to just 21% following the vote. This trend was particularly prevalent among young people, with 27% of 18–24-year-olds feeling pessimistic about their retirement pre-Brexit, and 43% of 18–24-year-olds feeling pessimistic post-Brexit.

However, the impact may be limited, with 53% saying Brexit will not affect the amount they will save, and only 11% saying they will be putting away less money as a result. In fact, the uncertainty around the vote may even have spurred people on to engage more with saving, with 26% of young people (18–24-year-olds) suggesting they will now put away more money.

Source data:
[1] The 12th Scottish Widows UK Retirement Report monitoring pension savings behaviour annually using the Scottish Widows Pensions Index and the Scottish Widows Average Savings Ratio. The research was carried out online by YouGov across a total of 5,151 nationally representative adults in April 2016. An additional piece of research was carried out by YouGov following the EU Referendum among 1,709 adults. Fieldwork was undertaken from 19–20 July 2016.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE

Forecasting future variations in volatile investment returns
To invest successfully, you have to navigate complex market forces, so it’s important to take a more rounded approach. Investors have much to think about when choosing and understanding investments; in particular, market volatility and the impact it can have on your investment.

Extreme market volatility during the credit crunch demonstrated how markets can swing wildly. Understanding volatility is therefore vital to the overall process of choosing the right investments. Volatility is how sharply and how frequently a fund or share price moves up or down over a certain period of time.

It can be triggered by any number of factors. The UK stock market, for example, can fluctuate because of various factors both home and away: the Eurozone debt crisis, the slowdown in the US and problems as far flung as China can all have a turbulent effect on markets. Periods of losses/downturns can be followed by upswings (also known as ‘rallies’) and vice versa. But this is the very nature of the stock market.

Standard deviation
The most common measure of volatility is standard deviation. This measures how much the value of an investment moves away or deviates from its average value over a set period of time, i.e. how much it rises and falls. The more volatility, the higher the standard deviation.

Forecast volatility attempts to use standard deviation to forecast future variation in returns. The higher a forecast volatility figure, the more an investment could move both up and down over time.

Loss or gain
Generally, investors are happier with lower volatility, even if this means making less money over time. Investors worry most about volatility when markets are falling. When this happens, remember that any loss or gain is only realised when you sell your holdings. Investing for the long term means short-term volatility is not necessarily a reason to panic and make drastic changes.

It can actually work to your advantage if you invest a monthly amount. When prices go up, the value of your investment rises; when they go down, your payment buys more. This is often referred to as ‘pound cost averaging’. However, this cannot be guaranteed.
Smooth out any bumpy rides

Spreading risk through diversification is often said to be the first rule of investment. Diversification across a range of markets and asset classes will enable your savings to go to work in different markets and, crucially, reduce exposure to one individual area, as one asset class may go up while another goes down.

Strategies of long-term investing and regular saving will help smooth out any bumpy rides. Matching your attitude to risk with your investments is crucial to getting the right portfolio for your needs.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Catalyse, or sabotage?
Supporters of the British vote to leave the European Union (EU) have heralded recent economic indicators as vindication that Brexit will act to catalyse, not sabotage, the UK economy. Before June’s referendum, most economists warned that a Brexit vote would damage economic growth – an argument at the heart of the unsuccessful Remain campaign. Read more…

Helping you reach your long-term financial goals
In the current economic climate, with interest rates still around record lows, investing in the markets could enable you to achieve an inflation-beating return and help you reach your long-term financial goals. Read more…

Striking the right balance is important to avoid losses
While diversification is important, you should keep in mind how much risk you are prepared to accept on your money. If it is important to you to avoid losses, you may want a portfolio that has less in shares and more in cash and fixed interest securities held to maturity, for example. Read more…

What you need to know to become a more confident investor
Before you choose or make any investment decisions, you need to know that investing involves the possibility of loss. These key considerations help you become more confident about your investment decisions. Read more…

Your decision can have a big impact on your returns

Should you invest all of your money in one go or drip feed it into the stock market over time? The answer will ultimately depend on whether you have a lump sum to invest or not, but it can have a big impact on your returns. Your decisions will invariably be based around your circumstances, attitude to risk and where you are investing your money and why. Read more…

Investing in one or more asset classes
Investing in funds provides a simple and effective method of diversification. Because your money is pooled together with that of other investors, each fund is large enough to diversify across hundreds and even thousands of individual companies and assets. A pooled (or collective) investment is a fund into which many people put their money, which is then invested in one or more asset classes by a fund manager. Read more…

Acting in the investors’ best interests at all times
Open-ended investment funds are often called ‘collective investment schemes’ and are run by fund management companies. Read more…

Expanding and contracting in response to demand
Open-Ended Investment Companies (OEICs) are stock market–quoted collective investment schemes. Like investment trusts and unit trusts, they invest in a variety of assets to generate a return for investors. They share certain similarities with both investment trusts and unit trusts, but there are also key differences. Read more…