JPMorgan Asset Management highlights lack of faith in traditional pensions and urges people to diversify their portfolios for retirement

e-mail print

Oct 23, 2006

– Less than half of people now expect a pension to be their main source of retirement income

– However there is an over-reliance on property

– Investment Trusts could provide a sensible alternative solution to providing retirement income

London, 23 October 2006:   JPMorgan Asset Management today reveals the findings from its latest ‘Pensions Map’ report into the state of the UK’s retirement provision.  The report shows that traditional pension schemes are falling out of favour with less than half (48%) of people of working age expecting formal pension schemes to be among their main sources of income in retirement. 

And the reliance on pensions shows a continuing decline.  62% of people aged 55-64 said a pension would be one of their main sources of income in retirement but this falls to only 38% among 25-34 year olds.  It seems that the younger generations are rapidly losing faith in traditional pension schemes.

What are people relying on to provide their income in retirement?
Although the research still ranks pensions as the most prevalent means of retirement provision (48%), other investments, like savings accounts, ISAs and shares, are strong contenders, with 41% of people expecting these to provide a significant part of their income in retirement.

35% expect their own property to provide a significant part of their retirement income and, perhaps worryingly, almost a third (32%), are going to rely on a part time job during retirement. 

A large proportion of people are also putting their faith in third parties.  Almost a fifth of people (17%) hope that inheritance will provide income in old age and 29% are likely to rely on state benefits, while 30% are expecting to rely on a partner or spouse’s income.

David Barron, head of investment trusts at JPMorgan Asset Management said: “The balance of retirement funding is shifting and traditional pensions are falling out of favour. However the findings of our research show that people aren’t sure where to turn to as an alternative source of retirement income, and which of the alternatives are right for them”.  Barron is particularly concerned that people could be overestimating the potential returns from property. 

Property proving popular – but will it give you what you need?
Property prices are still increasing and more people than ever are expecting their own home to provide for them in retirement.  13 per cent expect an equity release scheme to achieve this and 22 per cent plan to downsize their home and use the equity released from the downsizing to fund their retirement.

On the face of it, the trend looks good.  Over the last ten years there has been a significant increase in the returns from property downsizing. Looking at the UK as a whole, the average downsizing return has increased from £27,000 in 1996 to £81,000 in 2005 in nominal returns.  But although this seems a good lump sum, many pensioners prefer to have a regular income that spans their whole retirement, and this sum falls well short of providing a healthy annuity.  At current annuity rates, a fund size of £344,000 is required to secure a retirement income of £25,000 per annum, – so the average downsizing return of £81,000 would fund only 3 years of retirement.

People also need to take regional differences into account – where you live can make a huge difference to average downsizing returns.  For example, while downsizing proceeds in London have increased more than 370% over the last ten years from £72,000 to £265,000, in Northern Ireland there has been an increase of just 7% - from £51,800 to £55,300.

So where should people look for retirement income?
With faith in traditional pensions in rapid decline, and people over-estimating the returns from property downsizing, David Barron believes now is the time to take a good look at investments like shares, investment trusts and ISAs – already the most popular alternatives to the traditional pension. 

“With the FTSE reaching a five year high last week, now could be the time to diversify your pension portfolio and move into equities, as they are only asset class likely to provide investors with sufficient returns over the long term to help meet pension funding requirements. Investment trusts provide more diversification for the investor than if they were to hold single stock equities, while the trusts’ low costs make them very attractive when considering them for a long-term investment such as a pension. Additionally, the use of gearing by investment trusts means that the potential for returns is greater than those offered by other diversified equity-based investment vehicles. The range of JPMorgan Investment Trusts, currently the largest range on offer in the UK, should be considered by investors as they cover key markets and sectors around the globe. The diversity and breadth of the JPMorgan Investment Trusts, combined with performance and service, has won awards from both investors and industry.” 

With £6.5 billion assets under management in 19 investment trusts* JPMAM is the UK’s leading investment trust managers by net asset value.  JPMAM’s disciplined investment strategies deliver consistent outperformance.  For example, out of 20 funds, 17 (85%), 20 (100%) and 14 (74%) client trusts beat their benchmark index over 1, 3 and 5 years, respectively*.

For more information on JPMorgan Asset Management’s range of funds visit:
www.jpmorganinvestmenttrusts.co.uk

- ENDS -

For further information please contact:
JPMorgan Asset Management   
Kok Kuen Poon, Senior Public Relations Manager 
Tel: 44 (0)20 7742 8337    
Email: kokkuen.poon@jpmorgan.com  

Lansons Communications
Laura Wood     
Tel: 44 (0)20 7294 3689 
Email: lauraw@lansons.com   

Ali Richardson
Tel: 44 (0)20 7294 3679
Email: alexandrar@lansons.com

Notes to Editors

About JPMorgan Investment Trusts
In the UK, JPMorgan Asset Management is one of the largest managers of investment trusts by assets under management, market capitalisation and number of investment trusts (source AIC).  JPMAM manages 19 investment trusts covering both conventional and split-capital structures.  The range includes broadly-spread UK trusts such as JPMF Claverhouse and JPMF Mercantile (one of the largest trusts in the sector), and also highly specialist choices such as single-country trusts focusing on India, China and Russia.

* Source: JPMAM.  As at 31 August 2006

JPMorgan Asset Management is part of J.P. Morgan Chase & Co. and is a global asset management leader providing world-class investment solutions to clients. With US$935 bn. in assets under management (the Asset Management client funds of JPMorgan Chase & Co. as at September 30 2006) and offices in 40 locations around the world, JPMorgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.

JPMorgan Asset Management is a trading name of JPMorgan Asset Management Marketing Limited which has issued this material in the United Kingdom and which is authorised and regulated by the Financial Services Authority.  Registered in England No. 288553.  Registered office: 125 London Wall, London EC2Y 5AJ.

Any past performance referred to in this material is not a guide to future performance and the value of investments, and any income from them, can fall as well as rise.  Any tax concessions referred to are not guaranteed and their value will depend on the individual circumstances of investors.  Stock market linked investments carry a number of inherent risks.  These risks will increase where fluctuations in exchange rates impact on the value of any underlying investments or where the investment is exposed to smaller companies or emerging markets.  Investments in fixed income securities that are not rated as investment grade represent a greater risk to an investor’s capital.