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Could gated investments hinder Briton’s retirement plans?

If something sounds too good to be true, it probably is, so the saying goes.

Whilst this statement tends to be dismissed as overly cynical and pessimistic, it certainly rings true in a large proportion of financial services propositions. One particular example springs to mind: gated investments.

Indeed, whilst they often promise generous returns and the possibility of maximising pension savings, they often impose significant restrictions on investments. Further still, this could inflict a great deal of damage on retirement savings.

As such, it is important for individuals to understand the risks of such investments.

What are gated investments? 

Put simply, gated investments are funds that can block investors from accessing their money. Such action commonly occurs within illiquid, open-ended funds – such as property – which are particularly sensitive to investor actions. As such, if too many investors withdraw their funds at once, the value of the investment can plummet. Fund managers, therefore, argue gating the fund can protect the value of people’s investments.

This action may seem reasonable at face value, however preventing people from accessing their money as and when they need it can prove particularly problematic.

Take, for example, the Woodford Equity Income Fund. At its peak in May 2017, the fund held a record £10.7 billion; however, in May 2019, withdrawals were averaging £9 million per day. Consequently, on 3rd June 2019, fund withdrawals were blocked, trapping £3.7 billion of investors’ money, with said investors still having to pay investment fees.

Clearly, this was a disastrous result for investors. That said, it’s arguable that those who were using the fund to finance their retirement were dealt the greatest blow.

How do gated investments impact retirement plans

Many pension planners are attracted to open-ended funds, especially those within the property sector, because of the promise of strong returns. Particularly in a climate of high inflation and low interest, savers will likely be concerned that their pension is not working hard enough and may not be able to fund the entirety of their retirement. As such, gated investments appear to be a lucrative option.

However, given the economic volatility caused by COVID-19, many pension planners require the flexibility to rapidly adjust their retirement plans. And this inevitably means having instant access to their cash. After all, research from My Pension Expert found that nearly one in ten (9%) individuals aged 40 to 67 were forced to take early retirement because of the pandemic. Of course, if this group had money in gated investments, it would be near impossible to make an immediate withdrawal to cover the sudden loss of income.  

Evidently, gated investments are not best suited to retirement planners. That said, this does not mean that savers must make do with a retirement strategy that does not maximise their savings.

Seeking advice

There are a plethora of methods for people to maximise their pension savings, and independent financial advisers can help them find the path that best suits their needs.

Indeed, at My Pension Expert, our team of advisers thoroughly review a client’s current financial circumstances, as well as their pension plan and retirement goals. Doing so enables our advisers to develop a realistic strategy that helps them to grow their savings. What’s more, they also ensure that the client has the flexibility to adjust their plan in accordance with changing economic circumstances.

Whilst the appeal of gated investments is understandable at face value, Britons should think twice before committing to such investments. The restrictions that are put on investors could have a detrimental impact on short- and long-term finances. Instead, Britons looking to maximise their savings should seek help from an independent financial adviser. This will assist them in developing a secure and sustainable retirement financial strategy.