The news is full of stories about collapsing pension funds and risk to your retirement savings.
From defined benefit/final salary schemes to defined contribution pensions, we look at the risks to your pension savings.
Final Salary/Defined Benefits Pensions
Final salary/defined benefit pensions still offer the best protection against market movements.
For a while, there was a concrete risk that some pension funds might run out of cash to top up their collateral. This would have been a technical default and risked contagion to other areas of the financial markets. However, and most importantly it is highly unlikely this would have affected the scheme members’ pensions.
A technical default would not have been a good outcome, however it would not mean that pension schemes would be insolvent or forced into wind-up. There is a safety net if the scheme does fail called the Pension Protection Fund (PPF). The PPF might step in and pay members retirement income as compensation if employers become insolvent and the scheme doesn’t have enough funds to pay their benefits.
As a PPF member you’ll get 100% of your expected pension if you’ve already reached your scheme’s pension age, or 90% if you’re below that age when the employer fails.
It is also important to note that this wouldn’t impact public service pensions such as a Teachers, Police or NHS Pension as they are already safeguarded by the government.
Defined Contribution – Personal or Workplace Pensions
With a defined contribution pension (sometimes called money purchase) you build up a pot of money that you can use to provide an income in retirement. Unlike defined benefit schemes, which promise a specific income, the income you might get from a defined contribution scheme depends on factors including the amount you pay in, the fund’s investment performance and the choices you make at retirement.
Recent market volatility will have likely had a negative impact on the value of your pension and this could have been made worse if you are in a lower risk strategy or close to retirement and in a ‘Lifestyling’ strategy. A Lifestyling investment strategy which provides automatic switching of your pension savings into another fund, or funds which generally have a lower risk profile or
aligns your pension savings more closely to your plans for using these, as you get closer to your planned retirement age.
When considering what action to take it’s worth consulting a Financial Adviser as you may impact the long-term growth of your pension. I covered this in a previous article ‘The importance of Remaining Invested’. It can be important to look through the noise, and remain invested during times of market stress, depending upon your circumstances.
If you would like to discuss your retirement plans and pension with one of team please get in contact.
Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. The information contained within this article does not constitute personalised advice.