Pension savers who saw the value of their pensions fall by 20% during the economic storm of 2008/9 could have to triple their pensions contributions, to stay on course with their retirement planning. Pension advice is now urgent, as savers reassess the damage.
A person saving £500 a month for 25 years can generate a pension pot of £407,000, according to insurer MetLife. However, if the value of that fund falls 20% just 5 years before the saver reaches retirement, they would have to increase their pension contributions by an extra £1,031 to meet the same savings target.
Timing and good financial planning advice is the key. If, for instance, the same 20% drop had occurred during the first 5 year of their pension saving, their monthly contributions would need to rise by only an extra £55.51, according to MetLife.
MetLife recommends unit-linked guarantees as a precaution against drops in the value of pension savings. Unit-linked guarantees provide a guaranteed pension income which cannot fall below a certain level. However, unit-linked guarantees are products suited only to the cautious investor, and not to those seeking the maximum guaranteed income from their pension savings, or those who have a high tolerance for investment risk.
“We believe there is always a case for unit-linked guarantees for more cautious clients, as without guarantees customers are exposed directly to downturns in the stock market,” said Dominic Grinstead, managing director of MetLife UK.
“If markets continue to recover it makes sense to lock in gains along the way, particularly for clients who are close to retiring and in the vulnerable time zone as they approach retirement.”
