Annutity nosedive

Dansdad_3

I'm due to retire at the end of July, so I thought I'd follow the value of my pension pot on-line for the last few weeks. To my dismay, the value has dropped from over £82000 six weeks ago to £77000 today, this despite another two months contributions going in. Can anyone please tell me what's occurring?

Paul_Herring

The drop seems to be not dissimilar to the ~6% drop in the FTSE 100 over the past month.

I'm guessing your fund is largely based upon that index.

atush

Why did you leave your fund invested in the run up to retirement? It is normal practice, if buying an annuity, to move out of equities in the YEARS running up to retirement (not months).

Why didn't you or your IFA do this?

dunstonh

To my dismay, the value has dropped from over £82000 six weeks ago to £77000 today, this despite another two months contributions going in. Can anyone please tell me what's occurring?

leaving your investments in higher risk assets in the run up to retirement is a very high risk thing to do. It is recommended that you phase into lower risk assets in the 5 (or sometimes more) years leading up retirement. e.g. I put someone in cash fund on a pension in April who is a year away. It wont make anything over the next year but it wont lose either. The objective it to protect what you have rather than risk short term volatility where you do not have the time to allow for recovery.

Most IFAs will recommend a fund switch as part of the advice process leading up to retirement and open market option. That of course, assumes you are employing an IFA. If you are not, then you need to be doing this yourself (or rather you should have as its a bit late now).

GhIFA

As has been mentioned, this would be down to the underlying investments. With your retirement coming imminently you really should be reviewing this, or your IFA should if you are using one.

JezR

There would also have been a fall if the money had been in gilts - often thought of as being the safe option up to retirement but having themselves been in a bit of a bubble.

rpc

JezR wrote: »

There would also have been a fall if the money had been in gilts - often thought of as being the safe option up to retirement but having themselves been in a bit of a bubble.

Isn't the logic here that your fund value is inversely correlated to annuity yields, so although your fund may drop the amount of annuity you can buy remains the same.

If you are intending to buy an annuity, what matters in the last few years is preserving the value of annuity that you can purchase. It rather sounds like OP is not doing this - chasing volatile growth when you are shortly to sell is not really a sensible way to do it.

Dansdad_3

Thanks for the replies, Guys.
I'm pretty dumb when it comes to money matters, and it shows.

dunstonh

Dansdad wrote: »

Thanks for the replies, Guys.
I'm pretty dumb when it comes to money matters, and it shows.

This suggests you havent employed an IFA yet. I would suggest you do so as IFAs get the best annuity rates on the open market.

JezR

rpc wrote: »

Isn't the logic here that your fund value is inversely correlated to annuity yields, so although your fund may drop the amount of annuity you can buy remains the same.

This is the 'classic' assumption, but the connection is not exact and annuities tend not to react so quickly as the gilt price.

chucknorris

Dansdad wrote: »

I'm due to retire at the end of July, so I thought I'd follow the value of my pension pot on-line for the last few weeks. To my dismay, the value has dropped from over £82000 six weeks ago to £77000 today, this despite another two months contributions going in. Can anyone please tell me what's occurring?

It might have dropped significantly over the last 6 weeks but also it would have grown significantly (more) in the 12 months prior to that. So your high risk strategy (if it was a strategy) of leaving it to run in the ftse has actually paid off, as long as nothing drastic happens before the end of July and also depending when exactly you would have otherwise moved out of equities.