Pension-ditch it or stick with it?

Goinker

I have a pension with Standard Life, which I've paid into for a good few years now. Since most pension providers invest quite heavily in stocks and shares, many of which have plunged in recent months, I'm beginning to wonder if I should at least stop paying any more cash in, and possibly switch it to the best savings interest rate I can find instead, (I already have an ISA) rather than just keep throwing money into a "black hole" which may be losing cash faster than I can pay it in. It's perhaps a little late in the day now to be worrying about this, since I've only three years to go 'til retirement, but "Every little helps", so I need some positive suggestions on the right way to go from here.

DiggerUK

Goinker,
It depends on how you view the economic climate.

All estimates of a turnaround are well into the future.
Most analysts and politicos are talking about possible change in late 2009 early 2010.
I'd say get what you can now.

You got a tough call to make.

Manual_Reversion

Do you really want to sell up now and crystalise your losses?

Given that the stock market has most of the bad news already built-in to it's current value [if you subscribe to this view], do you want to miss out on a rally?

Three years is a short time to go and perhaps you are more protected in cash than you think as part of a 'lifstyle' regime where funds are transfered to cash automatically as you approach retirement age.

Think how different the world economic view looked three years ago. We're in a mess now. I bet in three years we'll think very differently. If the Second World War can't ruin us then a bloody recession won't stand a chance - it's just that we're not accustomed to the bad news, given the past decande.

Maybe I'm in cloud cookoo land, but methinks not!

FWIW

dunstonh

Since most pension providers invest quite heavily in stocks and shares

Most pension providers offer a range of funds that allow you or your adviser to choose how and where you invest. You dont have to be heavy in stocks and shares.

many of which have plunged in recent months,

That was correct to Sept last year but we are up nearly 20% on the low point. Whether that ends up being the final low point no-one knows.

I'm beginning to wonder if I should at least stop paying any more cash in

The money you are paying in now is buying units at much cheaper prices than the last few years (we are back to 2004/5 prices at the moment).

rather than just keep throwing money into a "black hole" which may be losing cash faster than I can pay it in.

I would be worried about your investments if they have fallen that much. Most are down 25-30% at the medium risk level which isnt that significant in the scheme of things unless you are retiring now or in the near future.

It's perhaps a little late in the day now to be worrying about this, since I've only three years to go 'til retirement

Many pensions have automatic risk reduction when you get closer to retirement or people have servicing IFAs that do this for you. Was yours reduced in risk either automatically or by your adviser?

Taking the pension income doesnt have to mean you stop being invested. There are different ways of doing this but in the end it comes down to preference, opinion, risk profile and financial circumstances.

sabretoothtigger

I was reading the other day about people paying especially more into a pension they were close to cashing because it can come out tax free. Pensions are great for avoiding income tax
Depends what pension type you have, maybe you should ask for more details

Thrugelmir

Cash and Fixed interest funds may be more appropriate as you intend retiring in the not to distant future.

jamesd

First thing to know is at retirement there are two main options. Almost all generic advice and the suggestion Thrugelmir made assume that you will be buying an annuity immediately with all of the money, or all but 25%. They typically offer certainty and a deal that gets better the older you are. With current life expectancies they aren't generally the best approach for those who are interested in doing well during the early years of retirement. They are often best for those who don't care to try to get a higher income and value certainty and easy of use above all things, or who simply can't handle the extra complexity of learning about the other options.

The alternative that is currently rapidly growing in popularity and is quite likely to be appropriate for your situation is to use income drawdown. This leaves your money invested and lets you take an income. You can use some of it at retirement or at various times in the future to buy annuities if you like.

Because the markets are currently depressed now is a poor time to be spending capital to buy an annuity. This favours using income drawdown to keep the money invested until the markets have had a recovery.

At the moment we're in a good time to be buying but not a good time to be selling.

It seems that your investments have not been arranged to reduce exposure to market ups and downs. Since we've probably seen most of the downs you probably won't be best off by switching the proportion to more of the less volatile types while we're near the bottom but as markets recover you should be looking to do that, gradually.

With three years to go you should have a good chance of seeing a nice recovery in value. Just don't be pushed into buying an annuity on the day you retire. There's no rush to do that.

It'll probably be useful for you to discuss this all with an IFA. The IFA can discuss how investments vary in value over time, sort out a split of investments that should help you gain during a recovery and work with you on a plan to gradually reduce volatility or switch gradually into annuities as you approach and move into the early years of retirement. Be sure that the IFA knows whether you're interested in learning about investments. IFAs are required to factor your understanding and willingness to do such things into their recommendations and if you appear clueless and uninterested the IFA will be obliged to suggest simple products that may not be your best possible option.