What action should I take in the months before I want to buy my pension annuity?Posted by in Annuities | Pension Annuity
The recent volatility in the stock market has highlighted the danger of staying invested in stocks and shares, also known as equities, in the months leading up to the date when you want to buy your pension annuity.
Most of us accept that in the long run equities can provide a better return than almost all other asset classes, but in the shorter term they can suffer from extreme volatility. This has been demonstrated over the past few weeks. The world’s stockmarkets have fluctuated significantly on the back of fears that the economic recovery is taking longer than expected and that certain western countries are struggling to repay their debt and may default.
How does the Greek debt situation or political squabbles over debt in the United States affect my pension you might ask?
Well, the simple answer is that, it is likely your pension has some exposure to these markets, and when they fall, so will the value of your pot, leaving you with less money to buy a pension annuity.
So what can you do about it?
The answer is relatively simple, but it does take a little work on your behalf.(Of course, you could get an Independent Financial Adviser to do it for you).
Most pensions offer a range of funds for you to invest in. Some pension investors actively look at which of these to invest in while others take a more laid back approach and can leave them for many years without reviewing their original choices. Therange of funds are there to satisfy a wide range of risk tolerances; there will be something for the most cautious and most adventurous investors.
In the period of time leading up to buying your pension annuity, consider moving away from equities to less risky funds. Funds investing in gilts, and perhaps corporate bonds would generally be considered to offer less risk than equity based funds, although these too can lose value with little warning. For ultimate safety choose a cash fund, which rarely falls in value, and if it does, it won’t do by much.
Taking such action will prevent your fund being exposed to large falls in the stockmarket, which can happen with little or no warning. Yes, of course it is true that you may miss some ‘upside’ if the market rises, but if recent weeks are anything to go by, the safe haven of cash, whilst you weigh up your pension annuity options, can be very reassuring.
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