Pension savers risk “sleepwalking into an uncertain retirement” by choosing to reduce their investment risk when approaching retirement, Seven Investment Management (7IM) has found.

According to 7IM’s discussion paper examining old assumptions for retirement, the strategy of reducing investment risk as retirement nears could leave millions of people running out of money towards the end of their lives.

As a result of its findings, 7IM is calling on the government to make this issue a “national conversation” and is challenging default ‘lifestyling’ pension funds that gradually switch from equities to bonds as the investor ages.

7IM is also emphasising the role of financial advice in order to ensure that pension savers utilise the investment strategy that’s right for them.

The firm noted that its most recent Value of Advice report highlighted that, on average, people who take advice on their retirement planning have an estimated £48,279 more in their pot compared to those in a similar income bracket who do not take advice.

7IM chief investment officer, and co-author of the research Chris Darbyshire, said: “The world has changed. With a huge number of default pension funds automatically reducing risk as retirement approaches, many investors are sleepwalking into an uncertain retirement. We are not saying reducing risk isn’t right for some people, but this is a conversation that needs to be happening. Investors should not underestimate the power of compounding. By reducing investment risk at the point when you are at your wealthiest you reduce its enormous potential benefits.”

7IM quantitative investment manager Matthew Yeates, continued: “The research suggests that in the vast majority of circumstances investors would be better off leaving more of their portfolios in equities at and into retirement than they have done traditionally.

“We aren’t saying investors should take more investment risk than they are comfortable with, but they need to understand that by choosing lower-risk investment options they may be increasing the danger of running out of money in retirement – and they certainly shouldn’t do it automatically without thinking the issue through.”

Jacksons Wealth Management chartered financial Planner Pete Matthew, concluded: "Arguably the time when the financial planning process can offer the most value to a client is the great transition from accumulation to decumulation. Planners and their clients need to factor in many variables to determine how long clients' money will last, and portfolios need to be managed more intelligently than ever. Automatic lifestyling just doesn't cut the mustard any more, and advisers need tools to be able to manage money and, more importantly, client expectations."

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