Pensions

Pension woes

A lot of you have written in with your stories of shrinking pension pots.

Andy is typical, He says: "I'm due to retire at the end of next month, so for the past five years my pension pot has been invested in very modest growth areas.

"In January, my pot was worth just over £606k, it's now valued at £505k. Even careful investors plans have been absolutely decimated," he points out.

But Ian Brown says: "A typical medium risk pension default fund that the majority of pension funds are held in, would have grown around 75% in the last 10 years.

"In the last month, it will have lost around 15% .

"Somebody asked why pension are linked to financial markets: there is your answer- If they were not, all pension pots would be a LOT smaller."

Sympathy for the pension savers?

The issue of people's pensions shrinking during the current market turmoil has certainly stirred up Business Live readers.

27-year-old engineer John has no sympathy at all.

"Under no circumstances should the government support pension schemes. Like the financial adviser has said, it is known that the value can go up or down.

"If I have to manage my money. So do they. If they want a pension handout then I want a house discounted to a 1980s rate. That sounds ridiculous, because it is."

Meanwhile Brenda thinks the link between pensions and the stock market should be severed.

"I have wondered for years why something so important as pensions, our funds to live on in the future, are tied into something as volatile as stocks and shares," she says.

"It seems obvious to me that something that says “your investment could fall as well as rise” is not the best place to be encouraged to put money that governs the future quality of our lives.

"This link between pensions and stocks and shares also means that too many people are affected by the movements of markets. Are there really no safer ways?"

That's the eternal question of risk and reward, which is perhaps something to be discussed another day.

More pension views...

Responding to our earlier correspondent's claim that his pension has fallen to 1990s levels, a financial adviser writes: "I have no idea what this person is invested in but absolutely no way should their pension have fallen to 1990s levels. We are at levels of around 2012-ish and if this person has been making regular contributions the pound-cost-averaging should smooth that out over the whole period."

He suggests that people getting close to retirement people should be looking at the 'lifestyling' approach to their pension.

"That involves maybe around 10 years to go, looking to move small portions into cash as you go through each year, which will safeguard certain amounts from this kind of market shock."

He reckons pension savers deserve no compensation.

"As everyone is always told, investments can go up as well as go down. Everyone is different and should always seek advice on these matters."

Food for thought there.

What about people's savings and pensions?

Bank of England
Getty Images
Bank of England

A serious issue has been raised by a Business Live reader who asked to remain anonymous.

What about pensions and savings and the impact on our personal future, he asks.

"I’m four and a bit years from the official retirement age but the last couple of weeks have seen the value of my personal pensions and retirement savings encouraged by successive Governments as provision for old age return to levels of 30+ (YES 30) years ago!

"Allowing for inflation I’m probably now little better off than I was in my early 20s.

"There's lots of talk of Government support for business, self-employed and just about any other group one can think of. But what of those like me that have paid our bills, avoided debt or borrowing and ‘gone without’ over the years in order to save for our retirement only to be rewarded by the loss of those savings at a time when we have neither the time nor resource to replace the loss?

"Where is the support for our group? Or are we to face the humiliation of living in relative poverty perhaps unable to afford the upkeep of our homes or the basics of life?"

Some crucial points there. Where do other readers think. Please send in your comments to bizlivepage@bbc.co.uk

Young pension savers 'more affected by fall in stocks'

Today Programme

BBC Radio 4

On Monday, global shares plunged in their worst day since financial crisis. What does this mean for pensions?

Jane Foley, senior currency strategist at Rabobank, says: "Anyone who's got a pension will be affected by what's happened in the markets yesterday.

"And how they're affected really depends on what their mix is in their particular pension portfolio.

"So normally if you're quiet young the investment manager will put a lot of your money into high risk assets. Now, these tend to be stocks, so you will be more affected by these falls in the stocks. However, as you get older, as you get closer to your retirement age, they tend to mix it up and put more in government debt.

"Now in the UK of course these are called gilts. Now what we saw yesterday is gilts rallying because government debt is considered to be pretty safe.

"If you were invested in government debt recently, your capital gain will be probably quite substantial."

Why should you care about stock markets crashing?

A Wall Street trader
AFP

As you may have heard, stock markets worldwide are suffering their worst week since the global financial crisis of 2008, due to fears over the coronavirus outbreak.

But why should it matter to you if the stock market crashes?

"Almost everybody is an investor. Your state pension is funded in part by the stock market," Emma Wall, head of investment analysis at Hargreaves Lansdown explained to the BBC.

"If you work in a place that employs more than one person, you will also be an investor as since 2012, companies are duty-bound to offer all employees workplace pensions, and those are invested in the stock market, among other things."

However, she advised caution when seeing markets turn volatile due to political uncertainty, epidemics or natural disasters.

"Stock markets by their very nature go up and down in value and sometimes if you are focused on the long-term, as you would be when saving for retirement, the best thing to do would be to try to ignore it," she added.

"The market falling can trigger our fight or flight instinct, but when the market has fallen, that is arguably the worst time to sell, as you are selling at a less valuable price."