Money
Pensions
Stock market falls: savers told to hold their nerve
Pensions savers are being urged not to panic about the safety of their retirement nest egg in the wake of the UK stock market plunge
The FTSE100 index fell below levels recorded after the terrorist attacks on September 11, wiping billions off the value of Britain's largest companies - along with pension funds.
The UK's 200 biggest pension schemes saw £15 billion wiped off their value on Monday January 21.
But the National Association of Pension Funds (NAPF) claimed that there was nothing to worry about.
"Short-term falls in stock markets will not have an enduring effect on workplace pensions," said NAPF policy director, Nigel Peaple.
"Pension funds who have defined benefit or defined contribution schemes, have over time been taking steps to reduce their exposure to volatile equities.
"In any case, pension funds invest in a range of assets, so to some extent, they are cushioned from such movements."
However, anyone planning to convert their pension pot into an income in the near future - by purchasing an annuity - could have less in the pot to do so.
Financial advisers have recommended delaying cashing in a pension now by deferring retirement or opting for drawdown which still allows you to take a cash lump sum - tax-free - but avoids buying an annuity.
NAPF figures from last year show that 92% of DC schemes now offer a 'lifestyle' fund which progressively shifts investments towards less risky asset classes as they approach retirement. This will be some comfort for anyone retiring soon.
"If you are some years away from retiring then market swings now should not worry you," said Jason Hemmings at Albannach Financial Management. "The whole point of a long-term investment such as a pension that it is there long enough to recover from any lows."
Experts predict that more generous defined benefit or final salary schemes are going to suffer from large deficits, but with the Government-sponsored Pension Protection Fund in place, scheme members will have a fall back fund.
Those with stockmarket investments outside pensions are advised to leave their money where it is.
Hemmings said: "These are paper losses right now, but if you cash in your investments now they will become real losses.
Anyone with stock market investments should be in it for the long term. So think twice before making any snap reactions that could cost you in the long run. The idea is to buy low, not to sell low."
Brave investors could see the market falls as a buying opportunity since stocks and shares are now cheaper.
* Written by Holly Thomas. Holly is Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.
