Research findings around pensions often emphasise the need for people to save and engage more with their pots and retirement planning.

Savers not setting aside enough or having little knowledge of pensions are some of the conclusions that such surveys and analyses often draw attention to.

Research from Aviva this year, for example, found a notable gap between levels of perceived and actual knowledge around pensions.

While more than half of people (53 per cent) described themselves as knowledgeable about pensions, only a third were able to correctly identify a defined benefit (35 per cent) or defined contribution pension (34 per cent).

One in five (20 per cent) did not know what type of pension they have, and almost three in five (57 per cent) were unaware of tax relief on pension contributions.

These surveys often find room for improvement in people’s knowledge of pensions. But a separate poll of over-50s suggests that what people are aware of as they approach retirement is the role that their risk appetite plays in retirement planning.

Three-quarters (76 per cent) cited appetite for risk as an important factor when deciding what to do with their pension pot, according to research conducted in 2024 for Standard Life.

Two in five over-50s who were still working (41 per cent) expected their tolerance for risk to reduce as they near retirement. In contrast, less than one in 10 (8 per cent) anticipated an increase in their appetite to take on more risk with their pension savings as they approach retirement.

With advisers often working within six risk levels, multi-asset strategies enable risk to be raised and lowered with “precision”, says Isabella Galliers-Pratt, an investment director at Rathbones, and enable portfolios to be adjusted in line with market conditions and factors that are specific to clients.

Risk profiling in the regulatory spotlight

As well as being a priority for over-50s, the Financial Conduct Authority highlighted the issue of risk last year following its thematic review of retirement income advice.

According to the regulator, its reviews of centralised retirement propositions found that among all 24 firms assessed, the risk-profiling approach showed “no clear distinction” between accumulation or decumulation.

“This meant the language and questions were not specifically framed for customers in decumulation,” the FCA’s report states.

“Although, generally, the example questionnaires we saw were clear, with unambiguous questions and descriptions, some were written with an accumulation-specific focus. This means customers could be inaccurately profiled and take on risk not in line with their circumstances.”

However, the report also states that “in a small number of examples, firms had recognised that an accumulation-specific risk-profiling approach had limitations, and supplemented this with a more detailed discussion about retirement income needs and the need for secure income.”

Mitigating decumulation risks

Besides addressing clients’ personal levels of risk, multi-asset investing can help address risks in decumulation. These include longevity, inflation and sequencing risk.

With savers concerned about running out of money in retirement, Michael Robinson, head of investment development at Aegon, says the worry is a “direct manifestation” of these risks in decumulation.

“With lifespans increasing, a retirement portfolio may need to provide an income for 30 years or more.

“A multi-asset portfolio . . . retains a diversified engine for growth. By remaining invested across a global range of assets, it provides the long-term compounding necessary to sustain a client through a longer, more active retirement.”

On the other hand, a traditional ‘de-risked’ portfolio that moves a large extent into cash and bonds may help to mitigate volatility, but tends to fail the longevity test, Robinson says. “This introduces a different, more insidious risk: the certainty of inflation eroding the capital base, leading to the very outcome the client fears most.”

The recent spike in inflation served as a “painful reminder” of its impact on purchasing power, he adds, especially for those in decumulation.

“A static, bond-heavy portfolio offers little mitigation. A flexible multi-asset structure, however, has the mandate to adapt. It can make strategic allocations to assets that offer a better inflation hedge, such as global equities with strong pricing power, infrastructure, or other real assets.”

Multi-asset investing can also help mitigate sequencing risk, says Galliers-Pratt, by diversifying across asset classes, smoothing returns, and incorporating defensive assets to buffer against volatility, while maintaining liquidity to avoid forced asset sales during more difficult market downturns.

And with drawdown risk being potentially detrimental particularly for clients approaching or in retirement, maintaining a broad asset allocation can help to cushion portfolios during periods of market stress.

“When equity markets decline for example, government bonds and assets with a low or negative correlation — gold has historically been a good example of this — often remain stable or even appreciate, helping to offset losses and reduce overall portfolio volatility,” she says.

“Meanwhile, fixed income and real assets typically maintain income streams, supporting cash flow even in downturns.”

Active management can form an extra layer of protection, Galliers-Pratt adds, with managers monitoring and adjusting allocations based on macroeconomic trends, valuation signals, and risk indicators to reflect changing market conditions.

“This may involve tactical shifts, such as reducing exposure to riskier assets like equities, and increasing holdings in defensive assets like cash, gold or government bonds ahead of or during a market downturn. Dislocations in asset prices can also create tactical opportunities.”

Iain McLeod, director of investment proposition at Royal London, also says active management makes diversification more powerful.

“Portfolio managers can adjust allocations in response to evolving market conditions and asset class outlooks. This dynamic approach not only aims to optimise returns and control volatility, but also plays a key role in managing drawdown risk and supporting long-term income stability.”

 

 

 

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