The decisions you face near retirement can be daunting, but Teresa Hunter has advice on jumping the hurdles in your way

But this relief can quickly be replaced with a new worry, if letters to the Money Pages are anything to go by. Some readers, particularly those in their 50s, are wondering if they should move their company or personal pension scheme into cash now to avoid the disaster of opening a statement next year showing values slashed yet again.

Brian Henderson, a principal at Edinburgh pension consultants Mercer, says: "Equities peaked most recently in 2007, then they went through the mire, but by March this year they had recovered most of the lost ground.

"Trustees of company defined contribution schemes are not saying much to members, because most are young and have plenty of time to ride out these ups and downs. But if you are five to ten years away from retirement, this is a problem you need to think about."

In theory, equity investments should produce a superior return to other classes of investments over the longer term. However, this article of faith can be hard to hold on to, given stock markets are lower today than a decade ago, which explains why many professional pensions advisers are moving away from equities.

Against this, good fund managers have produced year-on-year growth for investors by picking the right stock.

Bryan Johnston, a director at Brewin Dolphin, says: "There's no doubt many people have found the main indices and benchmarks disappointing over the last decade. But although there may be some bumpy months still to come, my own personal belief is that we are at the beginning of a ten-year bull run."

Do you have the nerve to stay the course in the hope of picking up a bull run prize? More to the point, is it madness to even mount the starting block? Scotland on Sunday looks at the obstacle course ahead and the hurdles you need to jump to stay in the game. If you are still standing after each of these hurdles, then move on to the next.

1. PANIC LIQUIDATE

If your confidence in stock market investments is shattered to the point where you can no longer sleep at night, you should probably liquidate.

Henderson admits: "Sometimes we have to tell people some harsh truths. Not everyone is going to retire on a great pension. If you look at the money in the kitty now, and see what kind of annuity it will buy, you have to ask yourself whether you can realistically cope with another fall in the value. If the answer is no, you may need to act."

2. RUNNING OUT OF TIME

For most people, time is the crucial factor. Those in their early 50s will have to consider hard when they will want to begin drawing benefits from the pension.

If you are less than ten years from retirement, then the need to play safe is more urgent.

Hargreaves Lansdown's Danny Cox explains: "The decision-making all comes down to when you need to draw benefits. Someone aged 54 and planning to retire at say 60 may want to move into safer investments. But if their planned retirement age is 65, 66 or later, which gives them 11 or 12 years to go, then they still have time to ride out the storms."

Henderson adds: "You have to ask yourself: 'How much time do I have to get out of jail?' Investment strategy doesn't matter all that much when you are young, because frankly there is not much money at stake. It is later in life when you have serious money at risk that these decisions become important. If you've got ten to 15 years to go then you can let it run."

3. RISK DOING NOTHING

In the decade before retirement, there are two major risks. The first is that your pot will tumble in value, and the second is that annuity rates will have moved against you.

Henderson says: "The aim should be to avoid converting your pension into an annuity just after some cliff edge events."

Do nothing, and events could work against you.

4. GLIDE PATH

You should aim for a glide path which begins ten years before retirement. Interestingly, in the US, the glide path begins 20 years ahead of retirement.

Henderson explains: "In the US they want certainty in retirement, and the more certainty you want, the less risk you take. In the UK we put our foot on the gas for most of the time, then slam on the brakes coming up to retirement.

"The difference is we tend to get a higher level of pension for the same saving, but with more risk."

5. ALTERNATIVES

If you think you might like to switch some or all of your savings out of equities, you face the dilemma of where to put it. Essentially, the options are to move into cash, fixed-interest investments such as bonds, or property. With cash, your capital is protected, but returns are currently below inflation. Bonds and property may be less volatile than equities, but the returns are also usually lower.

Steve Wilson, of Alan Steel Asset Management, says: "If you want to move out of equities, the difficulty is none of the other asset classes are looking good value either. The return from cash is low, and government bonds, given the state of public finances, are hardly appealing. Property is scarcely something to rush into at the moment."

6. LIFESTYLE SWITCHING

Many company defined contribution schemes operate lifestyling, which is designed to protect employees as they approach retirement. For a target retirement age of 65, lifestyling normally kicks in at age 55. Over the decade leading up to retirement, the fund is switched out of equities in roughly 10 per cent slugs a year. In theory, this should avoid any nasty surprises in the run-up to retirement. But, as Wilson says: "The problem with lifestyling is that it is a very blunt tool. It might start switching you out of equities at the very wrong point just after they have crashed. If possible, investors would do better by taking a more active interest themselves."

Another problem is the target retirement date may not be the date at which you find yourself forced to retire. That could leave you with a bigger equity exposure than is comfortable at that point.

It is possible to switch off the lifestyling if you think you have more to gain from the economic cycle irrespective of your age. Alternatively, you can opt to slash your exposure to the market more quickly. Yet data shows that lifestyling did offer some protection during recent turbulence. If in June 2005 you had invested 100 in a typical equity pension fund, it would have risen initially, then fallen to 90 when the market crashed. But by this June it had climbed again to around 120 or 130. However, in a lifestyle fund, the value plunged only to 120 when markets dived, and today is worth between 130 and 140.

7. SLEEP AT NIGHT

If you are looking for safety, your options are limited. However, there is a new breed of absolute return and inflation plus funds to consider. Nick Frankland, a principal with Edinburgh's PSFM, says: "As people approach retirement, protecting their capital, and maintain its spending power rather than going for growth, becomes more important.

"Absolute return funds and inflation-plus funds, like those run by Standard Life, Schroders and Sigma, rotate their asset allocation to protect the capital and offer an above-inflation return. It's another way of de-risking your pension."

Henderson agrees these can play an important role if you are looking for security, but says they are only part of the picture. He bemoans the fact that other tools which would help those within ten years of retirement are simply not available. He says: "There are several pieces missing in what would be an ideal portfolio. We need annuity matching funds, deferred annuities and capital protection funds."

However, Wilson is less of a fan of absolute return and inflation plus funds. He says: "Our concern is with the lack of transparency with which some of these are run. It is not always easy to see where the income is coming from, and what is going on underneath the promises."

8. BUYING AN ANNUITY

Although the government plans to remove the obligation to buy an annuity, most people will need to annuitise if they want a pension to live on in retirement. Annuities are based on government fixed-interest investments known as gilts, and other bonds, the prices of which move up and down like equities, although normally less dramatically. If you intend to annuitise then it makes sense as you approach retirement to begin transferring your savings into investments which are moving in line with gilts.

Lifestyling does this automatically, as it moves money across from equities to gilts. If you want to protect today the value of the pension you can claim in the next few years, then consider a switch into a bond or gilt fund to match your pension plans.

9. DRAWDOWN

However, if you don't plan to buy an annuity at retirement, but to enter drawdown, then your time horizon just got a lot bigger. With drawdown, your money remains invested, and you withdraw an income to live on. If you enter drawdown with the intention of not annuitising until you are 75, 80, 90 or never, then your money still has 20 or 30 years plus to ride out the storms.

10. BULL RUN PRIZE

In any race, you can get to the final hurdle and falter because suddenly your confidence runs dry. It is the same with investments. Given the bumpy ride of the last decade, why should anyone be optimistic about the future?

Johnston is confident of better days to come. He says: "It is true the UK market remains challenging, not least because of the drop in dividends from the banks and now BP. But the potential for growth in China, Brazil, India and other parts of the world is enormous. And even in the UK some dividends are very attractive. "

The progressive yield on equities is currently 3.6 per cent, with dividends from AstraZeneca yielding 4.9 per cent, British American Tobacco 5.1 per cent, GlaxoSmithKline 5.5 per cent, Vodafone 6.4 per cent and so forth. Cox says: "Just because the economy is weak, it doesn't mean stock markets will be weak."

Hopes of a boom in the next decade are not blind optimism. At some stage in the UK, the privatised banks will be sold off, probably in chunks. This will supply a fillip for stock markets at home, with the coalition eager to emulate the success of the privatisation booms of the 1980s.