IT IS a well-established fact that the UK faces a pensions time bomb as, on the one hand, the costs of funding the state pension system are mounting to levels that cast doubt over its sustainability and, on the other, the level of private provision most people are making for retirement is woefully inadequate.

Indeed, recent research commissioned by Tilney revealed that a third of UK adults are saving nothing towards retirement and only 12 per cent are saving more than 10% of their salary.

Policymakers have been scrambling to address these challenges in recent years, taking hard but necessary decisions. These include gradual rises in the state pension age to reflect increases in life expectancy and also a legal requirement for most businesses to now automatically enrol staff into a pension scheme.

This has already extended workplace pensions to over 400,000 Scottish workers, who on this month’s pay day will have seen a significant hike in the minimum contribution level into their pension scheme, with more to come next year.

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While increasing the amounts saved and starting as early as possible are absolutely critical measures to defuse the pensions time bomb, so too is delivering an investment return on those savings to ensure they grow sufficiently. In this respect, public attitudes towards risk could be seriously jeopardising people’s chances of achieving long-term financial security.

Tilney’s research has found that among those who are saving for the long-term, 29% are not prepared to make any investment where there is a risk of losses and a further 46% say they are cautious. This means 75% of the public are risk averse when it comes to their long-term investing decisions.

This innate conservatism is widely evident, with cash seen as a preferred long-term savings route by four times as many people as either a pension or a stocks and shares ISA. This is despite years of utterly dismal interest rates that are actually negative in real terms once the corrosive impact of inflation is factored in.

There is of course nothing wrong with holding cash and other more cautious investments that can be called upon at short notice or in an emergency. But too many of us are holding on to low-returning assets, including cash, for very long periods of time.

While it may feel safe having a war chest of cash sat in the bank, this is an almost guaranteed way to see its real spending power decline as inflation quietly eats away at it like a mouse feasting on a lump of festering cheese.

The inherent risk-averse nature of the public is partly down to lack of confidence in how investment markets work. This isn’t helped by the absence of personal finance in the school curriculum in either Scotland or the rest of the UK. And it is certainly not helped by the excessive use of jargon by the financial services industry, with 67% of the public finding the language of pensions confusing.

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But this caution also seems symptomatic of a wider shift in society where risk warnings are increasingly prominent everywhere, from what we eat and drink through to workplace health and safety. These collectively give the impression that risk is a bad thing.

Yet in the world of investing, there is a fundamental relationship between risk and reward and without the former, you are unlikely to enjoy the latter and so risk is not a bad thing but a necessary thing.

This does not mean a cavalier, reckless attitude to investment risk will guarantee high rewards but it does mean that a measured degree of risk taking should be seem as the investor’s friend, not foe.

This can be managed through a well-diversified approach on a sensible, longer-term time horizon rather than a myopic focus on short-term news and current uncertainties that will ultimately come and go.

Without taking a reasonable amount of investment risk, much of the public are at risk of sleep walking into retirement misery.

Jason Hollands is managing director at Tilney.