Pensions and Inflation

DE_612183

So, I've noticed recently that my stakeholder pension investment has gone down a bit after steadily rising for a few years, given that Inflation is now kicking in, should we see pension investments rise ( in the near future ) - my thinking is as interest rates rise. so will invested retruns?

Is my thinking right or flawed?

Strummer22

It depends on how your money is invested. If mostly equities it will gain or lose value in tandem with the stocks it's invested in. The same is true of bonds but those tend to be less volatile than equities.

If any is invested in a fixed-return scheme then potentially the returns will increase as interest rates increase. But with interest rates being substantially lower than inflation (and likely to stay that way for a while), even if the value of your pension increases at the current interest rate, in real terms its value is being reduced by inflation.

squirrelpie

Strummer22 said:

It depends on how your money is invested. If mostly equities it will gain or lose value in tandem with the stocks it's invested in. The same is true of bonds but those tend to be less volatile than equities.

Agree about equities but the important point about bonds is that their prices are inversely related to interest rates. So as interest rates increase, the value of bonds will go down. If you're taking an income from them then the income may stay nearly level. Equities will be more variable and may well drop in the short term but over the long term should keep pace with inflation better. At least that's the theory as I understand it.