Key Retirement's nationwide study among over-45s found the average return they want from long-term investments is 7% – with nearly one in five aspiring to achieve returns of more than 10% on their funds.
Over-65s are still targeting average returns of 6.7% while those age 60 to 64 strive for 6.8%.
The high expectations among savers persist despite more than five-and-a-half years of the Bank of England base rate being stuck at an historic low of 0.5% and recent stock market volatility. The Financial Conduct Authority has set maximum gross rates of return before charges for projections at 2%, 5% and 8%.
Currently the best rate on a five-year savings bond is less than half the 7% target, at 2.96% before tax, while on a three year bond it drops to 2.4%. Even the Government’s planned Pensioner Bonds for the over-65s will only pay 4% on a three-year bond.
Investors’ high expectations could make them susceptible to taking more risks than they would otherwise be prepared to accept. Instead, enhanced annuities may be a more appropriate route for many retirement savers to achieve effective returns, typically in excess of six or seven per cent.
Dean Mirfin, group director at Key Retirement, said:
“Recent experience shows that achieving annual returns of 7% on long-term investments can be challenging unless savers are willing to take a very long-term view or accept high levels of risk.
“People converting their retirement funds to income cannot afford to wait up to 10, 20 or 30 years for a long-term return and also may not be willing to accept high levels of risk which could leave them open to taking out schemes they do not fully understand. Many do not appreciate that rates of return can be erratic and can also fall into negative returns some years.
“It underlines the need for expert advice on what is realistic now and in the future so that retirement savers can make the best of the genuine opportunities from pension flexibility, in a way that delivers true expectations.”
