How could your pension be linked to world events?

Posted on November 26th, 2010 | Categories - Pensions

On the face of it you wouldn’t think there was a link between events in Ireland, Greece or indeed Korea, however if you are about to buy an Annuity with your pension you could be majorly affected.

Why is this?

As they near retirement most people’s minds wander to consider the sorts of things they might like to do with their time; seeing more of the grandchildren, more time in the garden or perhaps visiting those far flung places that they always dreamed of seeing.

Indeed most people will spend some time researching the Annuity market to see just what income their pension could buy them and the Annuity rate they will get. However many people have spent little or no time thinking about where their pension is currently invested which could be an issue if stock markets fall just before you need to buy an Annuity.

Events such as those seen recently in Greece, Ireland and Korea can send stock markets falling and if your pension is invested in equities the result is easy to see – you could have less in your pension to buy an Annuity with.

Many of these events are unforeseen and can have a dramatic short term effect on your pension fund, just at the time when you want to convert it into an Annuity.

The solution?

In the years and months leading up to the time when you will buy an Annuity think carefully about how money is invested, how much risk you want to take and whether you are prepared to leave your pension fund exposed to short term stock market fluctuations.

One option is to move to a Cash or Deposit fund which most pension providers offer. These Cash funds and Deposit funds can provide a short term shelter from equity investments and will mean that if stock markets do fall just before you take the plunge to buy an Annuity, you will be less affected than if you were fully invested. These type of funds do not currently provide attractive returns, however they are less volatile than equity funds and will give you peace of mind whilst you decide which Annuity is right for you.