The Iran war has caused a significant drop in pension values, with some investors panicking and selling off shares. However, experts advise a calm and long-term approach to investing, especially for those approaching retirement. The key is to understand the impact of the war on your finances and adjust your strategy accordingly.
For those with a defined contribution pension, the focus should be on staying invested and continuing contributions. This is because the value of their pot is likely to be less than what it was a month ago due to the panic selling. On the other hand, those with a defined benefit pension, like James Owen, can afford to be more relaxed as they are not directly affected by stock market falls.
Owen's strategy is to avoid drawing down on his Sipp and use another private pension to buy an inflation-linked annuity. This approach ensures that his money will eventually be used for his future needs, even if it takes a few years to recover. However, he has also shifted his Sipp portfolio into more defence stocks, such as BAE Systems, to diversify his investments.
For those decades from retirement, the focus should be on buying assets at lower values, as this can boost returns in the long run. However, for those approaching retirement, steep losses will have less time to recover if they plan on drawing an income from their pension as soon as they retire. This is where de-risking comes into play, as most default pension funds are set up to gradually move away from riskier assets as savers approach their expected retirement date.
The balance between de-risking and maintaining growth is crucial. Taking risk off the table early means you are more insulated when markets fall, but it also means lower returns over the longer run. Therefore, it's essential to check your investment approach and make sure it still matches your plans as you approach retirement.
For those who are already retired, caution is advised when taking money out of their pension while markets are down. Instead, they should dip into their rainy day savings to tide them over until markets recover. However, those who have already bought an annuity will not suffer a fall in income from the market turmoil, but they may feel the squeeze due to higher inflation.
