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26 Aug 2015

5 ways to protect your pension following FTSE 100 crash

The recent Black Monday crisis, where global stocks were sold off as China´s markets plummeted, sent savers and investors into panic mode. A recent article on the Mirror website spoke to pensions firm Hargreaves Lansdown for its thoughts on what the news means for older savers, and how they can protect their pension pots.

Although the UK´s FTSE 100 managed to bounce back the morning after the shock, older savers are still feeling uncertain about what to do with their pensions, and whether they should cash it all in now.

However, Danny Cox, Hargreaves Lansdown´s head of financial planning, explains that “falling markets can have a significant impact on those drawing capital from their pension plans at retirement.”

“If you draw capital when markets fall you run an increased risk of rapidly eroding your pension and running out of money. You are locking in the losses and can suffer irreparable damage.”

With this in mind, the firm offers these five tips for how savers can protect their pension in times of economic uncertainty:

1. Keep cash in your pension

Pensions are often invested in a combination of physical cash and stocks and bonds. It´s advisable to hold a minimum of one to two year´s income cash in your pension, so that even during extreme markets you will have a safety net.

2. Reduce spending

Plunging markets can seriously affect those drawing too much income from their pensions. Try ro reduce drawing income or, if possible, stop doing so altogether.

3. Draw income instead of capital

Spending capital during these bad times will lead to more losses than taking the ‘natural yield´ of stocks and bonds.

4. Broaden your investments

Savers who diversify their investments into cash, shares and fixed interest will be far better protected than those who don´t, and will see more consistency in saving performance.

5. Pay more money in

The majority of savers under the age of 75 are entitled to pay more money into their savings while still enjoying tax relief. When markets are low, adding more to your pension pot can help balance things out as they begin to recover.

Copyright M2 Bespoke 2015

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