It seems that the current stockmarket turmoil around the world has dashed the retirement plans of well over 100,000 people in risky money purchase pensions contracts planning to retire in the next year. Those fast approaching retirement are likely to be worst hit; those who saved in old-fashioned personal pensions that do not protect funds against stock market volatility. Their retirement annuity will be a lot less than they had hoped for.
Experts say those planning to retire imminently face a difficult choice between deferring the day they start receiving cash in the hope that the market rebounds or taking the losses on the chin and buying an annuity now.
That choice is made even more difficult because industry experts predict rates could fall by as much as 10 per cent over the next year, as annuity rates usually shadow interest rates. With the Bank of England admitting recently that the economy is in recession, interest rate cuts seem likely, raising the likelihood of worse annuity rates deals for those people having to buy retirement annuities.
So-called balanced managed funds were one of the most common form of investment fund in old-fashioned personal pensions, and can have more than 80 per cent of their assets in equities or other volatile asset classes right up to the day before you retire, unless they have been monitored closely.
If you can, it might make sense to stay invested in the market and then review the situation if and when things do improve.
There is no obvious way out of this huge problem for those facing retirement over the coming weeks and months. The most important thing you can do is to make sure you shop around for an annuity when you come to retire. Most people still simply buy an annuity off the company they had their pension with, but you can get a significant increase simply by looking for the best annuity rates.
Smokers and people with medical and lifestlye conditions can get even bigger increases, sometimes as much as 35 per cent more than traditional annuities.
So, unless you can wait, shop around carefully for the best annuity rates.
