Warning it’s not as safe as you think!

TreborDrib

Hi all
Thought I would share my situation as a warning to others near retirement!
I had a Pension plan with one of the big providers set up by the company I worked for.
Nearing retirement was told by them it was moved to a low risk plan of UK Gilts and cash to ensure no surprises.
In Jan I asked for a valuation which was in line with my expectations.
On the advice of an IFA to consolidate asked for transfer value at end of Jan to consolidate all looked good. However a few weeks later my new plan advised me they have received almost 8%over £14K less than expected without warning.
On asking why was told Gilts had fallen and it was just tough luck plans can go down as well as up.
So if you think your pension is safe be aware low risk is subjective!

Linton

Nothing to do with it being a pension.  The same would happen wherever your gilt fund was held.  It is the nature of the world since the 2008 crash. .  Yes over the past 12 months gilts have fallen about 8%, in the previous 12 months they rose by 14%.  There ae no "safe" investments.

HappyHarry

TreborDrib said:

Hi all
Thought I would share my situation as a warning to others near retirement!
I had a Pension plan with one of the big providers set up by the company I worked for.
Nearing retirement was told by them it was moved to a low risk plan of UK Gilts and cash to ensure no surprises.
In Jan I asked for a valuation which was in line with my expectations.
On the advice of an IFA to consolidate asked for transfer value at end of Jan to consolidate all looked good. However a few weeks later my new plan advised me they have received almost 8%over £14K less than expected without warning.
On asking why was told Gilts had fallen and it was just tough luck plans can go down as well as up.
So if you think your pension is safe be aware low risk is subjective!

What are you intending to do with your pension when you retire?

If your intention is to purchase an annuity, then you should be aware that annuities are backed by Gilts. By moving your pension funds to Gilts in the run up to retirement, it means that if Gilt prices rise, so does your pension pot, and if Gilt prices fall, so does your pension pot. In effect, it means minimising the risk that the annuity income you purchase will be vastly different than expected, regardless of what happens in the markets.

If, however, you were not intending to purchase an annuity when you retire, then having this "lifestyling" function applied to your pension pot was probably not ideal.

Albermarle

I think its fair to say that the impression is given by a lot of investment fund and pension providers that equities are volatile but bonds/gilts are safe . So it not surprisingly comes as a shock to many people  to find this is not necessarily the case .

TreborDrib

Linton said:

Nothing to do with it being a pension.  The same would happen wherever your gilt fund was held.  It is the nature of the world since the 2008 crash. .  Yes over the past 12 months gilts have fallen about 8%, in the previous 12 months they rose by 14%.  There ae no "safe" investments.

Hi Linton
Understood but this fall of 8% was in less than 6 weeks and there was no notice of the change.
Was told one thing and received another 

kuratowski

Unfortunately there is no advance warning of market movements.  Investments fall a lot faster than they go up.  But it seems like the root cause of the problem was being invested in a annuity-targeting lifestyle portfolio which wasn't suitable for you.

dunstonh

I had a Pension plan with one of the big providers set up by the company I worked for.
Nearing retirement was told by them it was moved to a low risk plan of UK Gilts and cash to ensure no surprises.

That is known as lifestyling.    It results in a worse outcome in the majority of cases but avoids the major losses possible during the minority of cases.

On asking why was told Gilts had fallen and it was just tough luck plans can go down as well as up.
So if you think your pension is safe be aware low risk is subjective!

A gilts crash is considered 5%.    A stockmarket crash is considered 20%.    
No option is safe.   However, gilts are lower risk than equities and the recent gilts crash shows that.

Understood but this fall of 8% was in less than 6 weeks and there was no notice of the change.

A fall can occur in minutes or it can occur in years.   You don't get notice of falls as no-one knows they have happened until they happen.

Malthusian

How long were they switching from equities to gilts / cash? Lifestyling switches often take place over a period of 5 or 10 years.

Until the recent correction, gilts were up 20% over five years and 60% over ten years. Despite being a supposedly lower risk investment with near zero yield. Unless you switched your entire pension fund into gilts in January (which would be very unusual, especially as this seems to be an automatic lifestyling switch) you've likely gained considerably more on the swings than you have lost on the roundabouts.

Thrugelmir

Gilt yields have risen in response to the perceived threat from inflation. Annuity rates have nudged upwards as well. 

TreborDrib

So my take on this is trust nothing you are told!
Nothing is low risk it is just relative and chunks of anyone’s pension can disappear overnight.
Until the money is in your hands anything you are told is worthless!

JoeCrystal

You could have changed over to pure cash funds entirely if you are so concerned about maintaining the value of the pot—the onus on you to make sure that this is the case.