AJ Bell SIPP investors keep growth in focus as retirement nears

Investing for retirement is typically a career-long endeavour. Starting out in your 20s and running all the way through to the point at which you’re ready to give up work.

How you invest in your pension during that time will often change as you adjust not only your contributions but also your risk appetite, with some opting to dial down their exposure to riskier investments as retirement gets closer.

What do SIPP holders of different ages hold and why?

We looked at two cohorts of AJ Bell SIPP holders aged 25 to 40 and 40 to 55 to see how they differed and whether there was a noticeable bias towards growth for the younger age group and income-based or more defensive investments for the older group.

The results suggest there is no such bias. In truth, this should not come as a major surprise. The landscape for retirement has been transformed thanks to the introduction of pensions freedoms in 2014.

Historically most people bought an annuity at the point of retirement offering a guaranteed income for life, assuming you were not among the shrinking numbers of people who had a defined benefit or final salary pension.

Before 2015, three quarters of defined contribution pension pots were used to buy an annuity according to government figures. The obvious approach if you know you are going to use your pension to purchase an annuity is to reduce your exposure to the ups and downs of the market in the run-up to your retirement.

Despite annuities regaining some popularity in recent years thanks to higher interest rates, which have made the income they offer more attractive, a flexible approach is far more in-demand.

Drawdown, which allows you to take as much or as little income from your pension as you’d like, is now by a distance the most popular choice among those with pots worth £100,000 or more.

Because people are not taking all the money out of their pension at once, it makes sense that, even when retirement starts to draw closer, there isn’t necessarily a concerted push into perceived lower-risk options. SIPP holders instead looking to ensure the portion of their retirement savings which might remain invested can continue to grow.

It is also worth considering that investors reaching middle age may also have gained greater confidence with their investing and have greater funds at their disposal to put to work.

What are the similarities and differences?

Both the 25-to-40-year-olds and 40-to-55-year-olds hold a smattering of global trackers and all-in-one funds, with several examples appearing in both lists, and both also hold shares in some of the big US technology businesses. Interestingly, Nvidia is more popular with those closer to retirement than those for whom it is a more distant prospect.

However, there are differences. The presence of iShares Core FTSE 100 ETF in the collection of most in-demand investments among the older group hints at a slightly greater bias not only towards domestic names but also towards income.

This product, which has ongoing charges of 0.07%, tracks a market which is known for offering more generous dividends than many of its global counterparts. Additionally, this version also distributes income on a quarterly basis.

The name which stands out for its popularity among the 20- and 30-somethings is Strategy Inc. Historically a software business, Strategy is now the largest corporate holder of Bitcoin worldwide, illustrating greater appetite for cryptocurrency exposure among younger SIPP investors. Though both they and their middle-aged counterparts also like a more traditional store of value in gold, achieved through holdings in iShares Physical Gold ETC.