Britons nearing retirement risk ‘difficult future’ if markets fall

Mini Budget 'not what markets expected' says Truss adviser

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Amid market turmoil, the Bank of England has been forced to step in with support designed to help pension funds. Andrew Bailey, the governor of the central bank, stepped in to offer an emergency 13-day bond-buying programme, that ended yesterday.

Pension savers are anxiously waiting, as the subsequent sell-off in UK Government bonds, known as gilts, has triggered a pensions meltdown.

As the state of the market remains unclear, anyone cashing in investments will have seen them recently fall in value, meaning less cash for their future.

Jason Hollands, Managing Director of investing platform Bestinvest explained how pensioners can avoid a “difficult” future.

He explained that the impact on pension savers will depend on what type of pension they have.

“If yesterdays events do help calm bond markets then that will be good news for the defined benefit pension schemes that have been facing serious liquidity issues and banking on further BoE help.

“In any case the holders of pensions backed by such schemes are in a very strong position – these used to be called ‘gold-plated’ pensions after all.

“Pension income from defined benefit schemes is predictable and secure, unlike income from defined contribution pensions or personal pensions.

“DB or ‘final salary’ schemes must be funded by employers and in the event a firm becomes insolvent, the Pension Protection Fund is there to provide a lifeline for members of the scheme.

“In the worst-case scenario, those who are members of DB pensions who are yet to retire might have to accept 90 percent of the due payout if they collapse.”

Mr Holland explained that wider global market turmoil has hit asset prices and this affects the vast majority of us who hold defined contribution or self-invested personal pension pots as well as Stocks & Shares ISAs.

Most savers will have seen their pot fall in value this year “which is unsettling” but savers should avoid panicking, he said.

Savers should not be tempted to give up on their pension, because asset prices historically have always recovered in the long term.

He added: “In fact, by continuing to contribute in market conditions like these savers are picking up cheaper investments with recovery potential once the current economic clouds start to clear.”

Mr Holland suggested how Britons approaching retirement can avoid a difficult future if markers do fall

“For those approaching retirement in the near future the outlook is more difficult, because they will have been expecting to start accessing their pension pot, and doing that now will likely mean cashing in investments that have recently fallen in value.

“If they can take steps to avoid this, then their long-term retirement finances should benefit.

“These could include cutting living expenses as much as possible for a year or two so that the minimum amount needs to be drawn from pension savings.”

He also suggested drawing on other savings or assets instead of funds held in pension investments.

Lastly Britons could consider prolonging work, perhaps on a part-time basis, to avoid drawing on their pension while asset values are down.

Prime Minister Liz Truss announced yesterday that Kwasi Kwarteng has been removed as Chancellor of the Exchequer after weeks of turmoil on the financial markets and political controversy since the mini-Budget of 23 September.

He has been replaced by former Foreign Secretary Jeremy Hunt.

At the same time, a further fiscal policy u-turn has been announced with the Government now set to increase the main rate of corporation tax to 25 percent, instead of keeping it at 19 percent as had been announced previously.

This is the second major tax cut u-turn after the Government recently confirmed it would not go ahead with a plan to scrap the 45p top rate of income tax.

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