How safe is my IMI pension?

How safe is my IMI pension?

In September, the British economy crashed – thrown into turmoil by the Conservative government’s mini-budget.

It saddled the country with debts to pay for huge tax cuts and drew unsympathetic criticism from the International Monetary Fund (IMF). The Pound spiralled, and this led to concerns over the value of people’s pension funds – which often buy assets in government bonds. So, the Chancellor was sacked, and a new one was installed.

However, despite the economic turbulence, your pension remains safe.

Read on to discover why.

So what actually happened?

Financial markets reacted unfavourably to the mini budget. That was characterised, in part, by the selling of government bonds (otherwise called ‘gilts’).

Because the value of money is dictated by public and private confidence, as soon as confidence in the Conservative’s economic policy was lost – which was immediate – the interest rate for the purchase of those bonds sky-rocketed.

That increase impacted regular pension funds. Pensions are invested in multiple assets – from shares in company stocks to property. But, the safest form of investment are government bonds, and pensions are invested in government bonds (gilts) to mitigate riskier investments.

When the mini-budget affected the price of gilts, the Bank of England announced that it would purchase £65 billion worth of gilts from pension funds to restore “orderly market conditions”. This scheme ended on Friday 14th October but seems to have stabilised the markets.

What does this mean for my pension?

If you are closer to retirement, your Mercer (MMT) Defined Contribution pension might own more gilts than if you are just starting your pension journey. That is because it is typically less risky for the value of your pension to hold these assets rather than investments – shoring up your savings in the run up to retirement. If you feel concerned about your retirement options in light of the impact of the mini-budget, you could consider speaking to an impartial financial advisor: unbiased can help you to find a financial adviser near you.

It is worth noting that pension schemes are protected – offering lifetime security. This protection should offer reassurance that you won’t lose your retirement fund.

Investments are also a long-term journey. The value of your pension can fall and rise depending on market conditions, approach to risk, and fund choices. That’s why it’s sensible to let your investments do their thing over the long-term, rather than reacting to short-term volatility.

2022 has been a difficult year for investment performance in general, triggered by the Russian invasion of Ukraine, the cost of living crisis, the enduring impact of COVID-19, and now Conservative economic policy. However, at a meeting on 28th September, the MMT Trustees and Committee were comfortable with Mercer’s investment approach and the role dynamic asset allocation has played within multi-asset funds. Put simply, the diversification of portfolios – keeping your finger in many investment pies – mitigates risk should a particular investment fall.

Indeed, the committee responsible for ensuring your pension’s assets are diverse now meets twice weekly to continue taking advantage of market opportunity.

Be rest assured that your MMT pension is in safe hands.

What is the Pensions Triple Lock, and why is it in the news?

The Pension Triple Lock was introduced to ensure that the State Pension would increase each year. It will either increase with inflation; average wage increases; or by 2.5% (whichever parameter is highest).

In 2019, the Conservative Party manifesto pledged to keep the Triple Lock – however it was suspended during the pandemic to combat rising earnings brought about by the furlough scheme. The Government then pledged to restore the lock by 2023.

However, the Foreign Secretary, James Cleverly, was unable to commit to preserving the triple lock in an interview with the BBC. Then, merely a few hours afterwards, Liz Truss contradicted Cleverly’s statement by saying that the “we will maintain the triple lock and I am completely committed to it and so is the chancellor”. She committed to raising the State Pension in line with inflation.

What paints this story in a different light, however, is the rate of inflation, which is currently at 10.1%. Consequently, the triple lock will increase the State Pension by 10.1% to mirror the rising cost of living, because the average wage has comparatively risen by 5.4%. Were the government to instead use that figure, and not inflation, to calculate the increase to the State Pension, they might save themselves £6bn in 2023.

You can begin claiming the State Pension once you reach retirement age, and it is designed to supplement a regular income from a workplace or personal pension. Whilst it is not enough to live on, the annual increase ensures that it doesn’t get overtaken by inflation and the cost of living crisis.

If any of these issues have raised concerns about your retirement plans, including the Pensions Triple Lock or the cost of living, it might be worthwhile speaking to a financial adviser, unbiased can help you to find a financial adviser near you. Speaking to an expert is always a good place to start.

To manage your MMT pension, log in to Optimize: you’ll be able to visualise your savings in one place. There’s no better way to interact with and get informed about your future.