A top financial expert has issued important advice to savers ahead of Rachel Reeves' planned pension megafunds.
It comes after the Chancellor announced last year that she was planning on consolidating local government pension schemes and defined contribution (DC) schemes into larger, more efficient investment pools.
Reeves said it could unlock around £80billion for investment in new businesses and critical infrastructure and reduce sky-high borrowing (see below chart) by enabling more significant investments in higher-risk, higher-reward assets like private equity and infrastructure projects.
However, the planned pension reform is not without risk. A key danger is that the government's goals for economic growth might not align with those of individual savers.
For example, a report from the Pensions Policy Institute (PPI) - an independent research organization that studies the UK pension system - concluded: "There is a risk that policymakers might prioritise national economic objectives over the primary goal of pensions, which is to provide secure retirement income for individuals."
Rachel Reeves is hoping pension megafunds will tame sky-high borrowing by driving investment
PA
Simon French, chief economist at Panmure Gordon, put it more bluntly: "The push towards riskier assets might be misaligned with the risk tolerance of the average pension saver, particularly those nearing retirement who might prefer less volatility in their investments."
Fortunately, savers are not entirely at the whim of the government.
Speaking to GB News, personal finance expert and Senior Contributor at Coupon Mister Andrew Gosselin reveals the steps Britons can take to protect their pensions ahead of retirement.
Before anything else, it’s worth understanding what kind of risks you’re comfortable with and adjusting accordingly, he advises, adding that talking to a financial advisor is a good place to start.
These experts are not just useful for people with "complicated portfolios", he explains, adding: "Even if you think your pension is straightforward, an advisor can help you figure out if the current setup still works for your situation."
Gosselin added: "They might suggest looking into a self-invested personal pension (SIPP) or even a stakeholder pension if you want more say over where your money goes."
What are these pension arrangements?
A SIPP is a type of personal pension where you choose your own investments – either yourself, or via an investment platform.
A stakeholder pension is a type of defined contribution personal pension scheme that spreads risk through diversified investments.
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A stakeholder pension spreads risk through diversified investments
PEXELSAs Gosselin explains, these pension arrangements could lower the risk from megafunds, which could see your pension money "funnelled into UK infrastructure projects, which might not always offer the best returns".
He continued: "Diversifying your investments is another way to protect yourself. If your pension ends up in a megafund heavily focused on one area, like UK projects, you might want to balance that out with other investments in different asset classes or markets. It’s about spreading the risk so you’re not too exposed if one part of the market takes a hit."
Even the new Pensions Minister Torsten Bell has previously warned that by investing in riskier assets in pursuit of higher potential returns, savers might end up facing losses, especially if the economic cycle turns or if these investments don't pan out as hoped.
The Government insists that by incorporating higher-risk investments into portfolios, there can be improved returns for savers".
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