On the face of it there is very little link between the events in the Ukraine and your pension in the UK. But if you are approaching retirement, events in this part of the world could put a lasting dent in your retirement income.
Bear with us and we’ll explain.
For most people a pension is a long-term investment, meaning that investing a proportion of the pot in stocks and shares is a sensible move.
As you near retirement, it makes sense, especially if you are planning on buying an Annuity, to move the money held in your pension into safer assets, which are not exposed to the peaks and troughs of the stock-market.
But, in our experience this doesn’t happen. We see too many people still predominantly invested in the stock-market as they approach retirement.
The problem? It’s very simple.
Events in a far off land, such as those we have seen in the Ukraine over the past few days, or indeed the economic problems seen in Ireland, Greece, Spain, Portugal and Italy can affect stock-markets here in the UK, potentially reducing the value of your pension pot, just as you come to retire, when you have little or no time to let it recover in value.
“How can I protect myself?”
For people not near to retirement, falling stock-markets are a nuisance, but not the end of the world as they have time to let them recover. The same is not true if you are retiring imminently; a smaller pension pot will translate into a smaller retirement income.
There is a simple answer though.
Most pensions have a range of funds which investors can choose from and generally a Cash or Deposit based fund is available. As the name suggests this type of fund invests in Cash. Whilst it isn’t covered by the Financial Services Compensation Scheme (FSCS), in the same way a building society or bank account might be, it can offer a far safer home than a stock-market based fund, whilst you carefully consider which Annuity to buy.
“How do I make this switch?”
It really is pretty easy.
Either you or your financial adviser can contact your provider, find out what Cash or Deposit funds are available and make the switch from there.
A couple of words of warning though:
- Don’t expect to receive much, if any growth, although this isn’t your aim, you are looking for a safer haven whilst you make some decisions
- The returns on these funds are poor and they shouldn’t be used as a long term home, if you decide to delay buying an Annuity you should remember to review your fund choice
- Make sure you fully understand any costs of making this type of switch. Whilst most pension providers will only make a relatively negligible charge, if indeed there is any cost, make sure you check this out just in case
- You should also check there are no penalties to switch out of your existing fund and that you won’t be invalidating any valuable guarantees by making the change
If in doubt, ask your financial adviser to help or just pick up the phone to one of our experts.