01 Sep 2011

How to protect your pension funds

How to protect your pension funds

Steven Ritchie, Financial Adviser, comments on worldwide stock market volatility and the impact that this has had on pension funds. With some pension providers now offering guaranteed products, people close to retirement should seek independent advice and look all the options available to them.

Steven Ritchie, Financial Adviser, comments on worldwide stock market volatility and the impact that this has had on pension funds. With some pension providers now offering guaranteed products, people close to retirement should seek independent advice and look all the options available to them.

Over the past few years, we have all witnessed significant changes in world economies. These changes have undoubtedly impacted on financial planning and in particular the retirement market. 

Understandably, this experience has left many people worried about the level of risk they are willing to take when it comes to saving for their future retirement. Recent feedback from both customers and financial advisers has led to some providers introducing a range of guarantees available under some of their pension products. 

These new enhancements offer clients a wider choice of capital guarantee terms and greater flexibility when it comes to saving for retirement. These guarantees will be of particular interest to people who are close to retirement, have built up substantial pension funds and wish to protect these funds whilst still remaining invested in the markets for capital growth and not wanting to move into a cash environment where it might be difficult for investments to keep pace with inflation 

The major benefit of these types of contract are that by taking appropriate action a pension can effectively lock in growth when investment markets are performing well but stop losses of income when markets are falling. This has been hugely effective in recent times when we have seen severe market swings over a matter of days and millions of pounds have been wiped off pension fund values in a matter of hours. 

The alternative options of staying fully invested in shares might not be palatable for a lot of people getting close to retirement due to the very fact their fund value could drop dramatically thereby reducing tax free cash and income for the rest of their life. The complete opposite option of moving into cash when interest rates are low and inflation is high will almost certainly see a drop in value in real terms for a pension fund so there type of contracts offer a half way house for many people – they will not sit completely in cash but they will not have the possible loss that equities have. 

Typically around 55%-65% of your fund can remain in equities giving potential for capital growth although that cannot be guaranteed although the income payable will depend on age and fund value as time goes on-you are not buying a final pension or an annuity with this option. 

These types of guarantees do not come cheap though and you need to consider the charging structure of the products and whether it offers you the best option available for your personal circumstances. 

These are not mainstream products and can be complicated. They are offered mainly by the Independent Financial Adviser sector through specialist providers and do need careful consideration before entering into. 

However as volatility remains in the market place it is a widespread view that these types of products will become more popular and certainly anyone who has entered into this arena in the last few months will have seen substantial benefit as their fund value has held firm whilst other equity based pensions will have fallen. 

So if you are within say 5 years of retirement and have any type of pension funds it may be worth investigating this option further-the cost of not doing so could prove to be expensive! 

Steven Ritchie, Financial Adviser 

Regulated by The Law Society of Scotland.  Authorised and Regulated by the Financial Conduct Authority.

 


Please correct the errors below before submitting your request:

Get in touch

Our dedicated client contact team prefer to receive enquiries through our contact form. We'll endeavour to get back to you within 24 hours or during the course of the next working day.

Source of enquiry