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People have spent a lot of time saving for their retirement and the last thing they need is for market movements to reduce the size of their pension just as they come to access it.
The key questions centre on much used "lifestyling" strategies, which move members out of assets like shares into so-called safer assets such as bonds the closer you get to retirement. The idea behind this is that you’re moving into a less risky asset with a better chance of preserving your pension pot value.
The current situation in which bonds are falling in value will cause concern for those on the cusp of retirement and thinking about turning their pension into an income.
Worrying as this may be, the key is to not panic — pensions are a long-term game, and we will go through turbulent times in the market. If you don’t have to decide now, then you can delay your retirement decision making until the market is more settled.
Read more: Five top tips if you retire in 2025
For instance, if you are thinking of moving into an income drawdown arrangement, then perhaps you can delay starting to take an income until the value of your pension pot has had a chance to recover.
Hargreaves Lansdown (HL.L) recommends retirees keep between one- and three-years’ worth of essential expenditure in an easy access bank account that they can use to supplement their income during turbulent times.
If you are in the market for an annuity, then this is an interesting time. Annuity incomes are based on long term gilt yields — these are bonds issued by the UK government and as their value falls, the yield from them rises and this results in rising annuity incomes.
As a result, you may find that even though your pension pot has fallen in value, you can still get the income that you need from your annuity. At the time of writing, the latest data from the Hargreaves Lansdown annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,425 a year from a single life level annuity with a five-year guarantee. This is up from £7,235 just a week or so ago.
Read more: Turmoil in bond markets sees investor interest in gilts ramp up
It’s really important that you get the right annuity for your needs, as different providers will offer different quotes and given that you can’t unwind an annuity once bought, it really pays to use an annuity search engine to assess the market and get the best quote. Your health, lifestyle and location helps help boost monthly income in nine out of 10 cases, so well worth looking at enhanced annuities when shopping around.