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Understanding the Current Investment Landscape - Pensions & Retirement

Date: 06 October 2023

4 minute read

Pensions

Understanding how a recession may affect your pension

The Office of National Statistics recently pointed towards the UK economy going into recession, meaning that the size of the economy has shrunk. If this continues, it can have important implications for your pension and other investments you may hold.

What this could mean for the investments in your pension
The impact of a recession on the size of your pension pot depends on where or how your pension is invested. As you will know, this may have an impact on your plans for retirement.

Understanding what this means for your retirement plan
The best way to understand this is to speak to an Adviser on Investment Manager. They can advise you on what changes to your pension pot mean for you and how that may impact the retirement you want. This could include changing the way you spend now, when you retire, or the way you choose to access your pension pot.

Source: ONS - https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/julytoseptember2022

Understanding volatility

Volatility is the rate at which the price of a financial asset
(EG a stock) increases or decreases over a particular period.

When there is higher stock price volatility, this can often mean higher risk.

Protecting your pension fund during periods of uncertainty

The most important step you can take to help protect your pension fund is to understand the level of risk your pension is currently exposed to. As you may know, investing in riskier assets means they will be more affected by periods of volatility and uncertainty.

Your Adviser or Investment Manager, can help explain the risk level of your pension fund, and can adjust your strategy based on the level of risk you are comfortable with. This will help to meet your financial goals over the long term.

Adapting to the markets when you are close to retirement

We know that when you are thinking about retiring soon, reassurance about your retirement plan is a priority. Most investors at this stage in their retirement plan find it beneficial to think about shifting to lower-risk, more stable assets, which can minimise potential losses. This has three key benefits:

  • You get certainty of income at a time when markets appear volatile
  • You keep the potential of long-term gains by staying invested
  • You protect your retirement pot against rising inflation, which could mean you would get less from the money you hold as cash

Speaking to one of our expert Advisers or Investment Managers will help you understand if you need to shift the investments in your pension towards lower-risk, more stable asset types, to give you the reassurance you deserve.

 

Understanding how the recent volatility in the bond markets could affect your pension

There are two types of pensions you could have - Defined Benefit (also known as ‘Final Salary Scheme’) and Defined Contribution. The type of pension fund you have will be affected by the recent volatility in the UK bond markets.

Defined Benefit
If you have this type of pension, then your pension may be invested in Gilts, which are bonds issued by the UK Government to allow them to borrow money. The value of Gilts can decrease in value in two situations:

  • When the Bank of England raises interest rates
  • When the Government loses investor confidence by making the investment feel riskier than before

As you may know, both of these happened in late September 2022. However, as recently as last month the Bank of England stepped in to specifically support the price of Gilts.

Transferring out of a Final Salary scheme is unlikely to be in the best interests of most people.


Defined Contribution
If you have this type of pension, then your pension fund may be more invested in stocks rather than fixed-income assets like Gilts.

Speaking to an expert Adviser will help you understand if there are steps you should take in the current market conditions for either of these pension types.

Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited 02/02/2023

 

Read on

Understanding the Current Investment Landscape - Mortgages

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