Putting money into pensions rather than savings

alexmi

Having lurked on these forums for a wee while now, I am well aware of the benefits of putting as much as I can into my pension, as I will get tax-relief on the payments, etc. However, with the current volatility in world markets my pension is of course being affected. In the past week I have seen the fund drop by around four times the monthly amount that I put in. Now I know that such investments are intended to be long-term, but as I am planning to hopefully retire in the next two to three years, I can't help feeling that at this stage I would rather have the money going into savings were, although they won't increase by much, at least the money should still be there in a few years rather than completely vaporised. I just wondered what other people's views were, and although I understand that maybe I just need to not think about it in this way, it is a bit disconcerting to be putting money into a pension each month that disappears virtually the next day.

dunstonh

However, with the current volatility in world markets my pension is of course being affected.

Nothing that is happening at present is new or unusual. You expect a period like this in any economic cycle.

In the past week I have seen the fund drop by around four times the monthly amount that I put in.

Which is excellent news for your contributions.......

but as I am planning to hopefully retire in the next two to three years, I can't help feeling that at this stage I would rather have the money going into savings were, although they won't increase by much, at least the money should still be there in a few years rather than completely vaporised.

....however, this could have an impact that is less good news.

1 - Are you planning to buy an annuity or do full fund withdrawal?
2 - Are you planning to do income drawdown in retirement?
3 - Have you adjusted your risk profile on your investments to reflect your chosen method? (risk reductions typically are recommended about 5-10 years prior to retirement)

You talk about cash. That is one end of the risk scale (although carries different risks) and talk about the stockmarket which is the other end of the risk scale (when purely looking at conventional options). However, you appear to have given no consideration for the things in between.

it is a bit disconcerting to be putting money into a pension each month that disappears virtually the next day.

You know there will be negative days. You know there will be positive days. You have to average these out. Not just look at the negatives or the gains in isolation.

jem16

alexmi wrote: »

In the past week I have seen the fund drop by around four times the monthly amount that I put in.

No your money will be buying more so good reason to continue.

Now I know that such investments are intended to be long-term, but as I am planning to hopefully retire in the next two to three years, I can't help feeling that at this stage I would rather have the money going into savings were, although they won't increase by much, at least the money should still be there in a few years rather than completely vaporised.

It depends on how you're going to take your pension. If it's an annuity you're thinking about then perhaps you should be looking at reducing the volatility by using different funds. If you're looking to use drawdown then you'll still be invested for a longer period.

alexmi

dunstonh wrote: »

Nothing that is happening at present is new or unusual. You expect a period like this in any economic cycle.

Yep, I realise that, like I said in the post.

dunstonh wrote: »

Which is excellent news for your contributions.......

Umm, how's that?

dunstonh wrote: »

....however, this could have an impact that is less good news.

1 - Are you planning to buy an annuity or do full fund withdrawal?
2 - Are you planning to do income drawdown in retirement?
3 - Have you adjusted your risk profile on your investments to reflect your chosen method? (risk reductions typically are recommended about 5-10 years prior to retirement)

No, I doubt I will be taking the annuity route for this particular fund. It's only worth about £40K and I have other pensions that will fill that role. I plan to draw it down gradually. I haven't adjusted the risk profiles, as the scheme I am in does this automatically from 10 years before retirement. However, it's only recently that I have realised that I may be able to retire earlier than I thought, so it is probably fair to say that I should look at the profiles and adjust them manually.

dunstonh wrote: »

You talk about cash. That is one end of the risk scale (although carries different risks) and talk about the stockmarket which is the other end of the risk scale (when purely looking at conventional options). However, you appear to have given no consideration for the things in between.

Such as?

dunstonh wrote: »

You know there will be negative days. You know there will be positive days. You have to average these out. Not just look at the negatives or the gains in isolation.

Aye, as I say I realise that, but it is hard when people tell you to put some of the savings I am making into the pension, when it just disappears, and what's more the forecasts are very gloomy for the world economy just now.

alexmi

jem16 wrote: »

No your money will be buying more so good reason to continue.

Ah, good point.

jem16 wrote: »

It depends on how you're going to take your pension. If it's an annuity you're thinking about then perhaps you should be looking at reducing the volatility by using different funds. If you're looking to use drawdown then you'll still be invested for a longer period.

Definitely the drawdown route for this fund. And I am happy to keep contributing to the pension at the current rate, it's more a question of should I top it up, as I had possibly though t about doing until the volatility that has occurred due to successive financial crises in the Greece and now China.

jem16

alexmi wrote: »

it's more a question of should I top it up, as I had possibly though t about doing until the volatility that has occurred due to successive financial crises in the Greece and now China.

Well now is a better time than a month or two ago but whether it's better now than in another month or two no-one knows.

alexmi

Yeah, that's very true. So I guess what you are saying is that the current downturn should not make it any less worthwhile putting money into it?

dano17439

Originally Posted by dunstonh
Which is excellent news for your contributions.......

Umm, how's that?

If your Unit price is £1 and you contribute £100 you buy 100 units. Then next month the unit price is 50p, you still contribute £100 therefore you buy 200 units.

When the units rise back up to £1 you now have Units worth £300 instead of the £200 its cost you

alexmi

OK, thanks, I hadn't thought of it in that way. The worry I have though is that they don't go back up to £1 again.

dunstonh

The media always presents drops as a negative. Usually goes on to say those with pensions are losing out. However, in reality it is the opposite. Drops like this are great new for people putting money in each month. Indeed, they are necessary. Without drops like this, the end pot is likely to be lower. This is in part what happened with endowments as they had an extended period without any real negative period (late 80s to early 2000s) and when the drop came it was much bigger. Whereas more frequent less severe drops give better long term returns (and this one is nowhere near severe yet. Its not even classed as a crash yet and is still only in correction classification).

greenglide

If share prices never get back to the prices earlier this year you will have more to worry about than your pension fund.