Be vigilant, but no need to panic yet for Britain's pensioners

Published on Tuesday 7 October 2008 21:10

INVESTORS across Scotland saw millions knocked off the value of their pensions yesterday, as markets plunged further.

But experts warned against panicking and insisted the current market turmoil was a short-term problem that would not affect most retirement funds.

"If your pension is a long-term investment and you're not retiring next year you should not get too nervous," said David Rankin, assistant director at Bell Lawrie.

If your retirement is imminent and your pension fund is still linked to the stock market, advisers recommend moving it into safer assets, or deferring retirement until the value of your pension recovers.

Most company pensions are money purchase (defined contribution) schemes that invest in the stock market, but the majority take steps to minimise risk, said Bob Hair, financial planning director at Turcan Connell.

"Money purchase schemes are usually very broadly diversified. Not all their assets will be in UK shares, and they will have other kinds of investments."

Not only will these schemes regain their value when markets bounce back, but they are ringfenced from a company's other assets and protected even if that company becomes insolvent.

Final salary (defined benefit) scheme values are not directly affected by stock market falls. But even these schemes are in some trouble, warned pensions expert Dr Ros Altmann. "Any employer with a scheme invested in equities or corporate bonds – or, indeed, property or anything else except gilts – will have suffered severe losses recently. Deficits will be far worse and employers are unlikely to have spare cash to fill those holes."

Members of collapsed final salary schemes have recourse to the Pension Protection Fund. Only public-sector pensions are entirely immune from disaster, as they are fully guaranteed by the taxpayer.

WHAT NOW

For information on your pension fund, contact your pension provider or financial adviser. The following organisations can also help:

&#149 The Pensions Advisory Service – 08456 012 923 www.pensionsadvisoryservice.org.uk

&#149 The Pension Service – 08456 060 265 www.thepensionservice.gov.uk

&#149 Pension Protection Fund – 0845 600 2541 www.pensionprotectionfund.org.uk