You may have seen several concerning stories in the news recently regarding some ‘Company Pension’ schemes.
Should you be concerned?
The ‘Company Pensions’ in question here are ‘Defined Benefit’ schemes which are typically offered to employees in the public sector and pay a regular pension payment in retirement based on the member’s years of service and salary. Pension schemes need to hold sufficient investment assets to enable them to meet the requirements for these payments for all members in retirement. The concern is that the investment strategies employed by some of these schemes forced them to sell assets at low prices, meaning they may no longer have sufficient assets to meet the payment requirements for members in retirement.
Fortunately, the vast majority of personal and workplace pension schemes are ‘Defined Contribution’ schemes where there is no guaranteed regular payment in retirement. The value of these pensions is affected by short term changes in markets but does not run the same risks of becoming ‘insolvent’ as Defined Benefit schemes. If you are still making payments into your pension, market volatility can even be of benefit, as you are effectively buying your investments at lower prices than before.
How are you affected if you are thinking of, or already withdrawing from, your pension?
If you are withdrawing money from your pension policy, or considering doing so, the situation is a little more complicated. Making large withdrawals while markets are volatile could have a detrimental effect on your retirement savings over the long term, as you may be effectively selling your investments at a lower value. We would strongly advise you to speak to an independent financial adviser if you are unsure what to do.