Saturday 10 December 2016

How to shield your pension from Brexit and Trump as higher inflation looms nearer

Published 27/11/2016 | 02:30

Some of the largest bond holders include private pension holders who are nearing retirement. These people also typically have a good portion of their money on deposit. High inflation spells trouble for holders of bonds and deposits.
Some of the largest bond holders include private pension holders who are nearing retirement. These people also typically have a good portion of their money on deposit. High inflation spells trouble for holders of bonds and deposits.

Irish investors in their early 60s who have yet to retire could be among the most vulnerable to Brexit and any uncertainty in financial markets triggered by the election of Donald Trump.

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Some of the largest bond holders include private pension holders who are nearing retirement. These people also typically have a good portion of their money on deposit. High inflation spells trouble for holders of bonds and deposits.

Inflation is already rising in Britain - and is expected to continue to do so as Brexit rolls on. Prices are also expected to increase in the US under Trump's reign.

Here are three steps you can take to shield your pension from Brexit and Trump as higher inflation looms.

1 - Be careful that your exposure to bonds and deposits is not too high. This is particularly the case if you have money in lifestyle pension funds, where your money is put into investments perceived as risky early on in your working life - and then shifted into assets perceived as less risky as you approach retirement.

With lifestyle funds, as much as 70pc of your money could be invested in bonds as you near retirement - that's a lot of money to have in an investment which is losing money.

"With lifestyle pension funds, people are often investing in bonds for between fifteen and thirty years," said Brian O'Reilly, head of global investment strategy with Davy. "Understand which bonds you are holding. We wouldn't recommend investing in a bond for more than five years."

Bonds typically lose value when interest rates rise, with long-dated bonds hardest hit.

2 - Avoid knee-jerk reactions with your pension and take a long-term view - if you have the time.

Those with 20 or more years left until retirement shouldn't be too concerned about Brexit or Trump, according to Aidan O'Neill, senior financial advisor with the Dublin investment broker, Clear Financial. "There will always be events which spook the bond and equity markets," said O'Neill. "What matters is that you take a consistent approach to funding your pension and take time to understand the underlying assets held in your pension."

3 - Should you only have a few years to go until you retire, check where your pension savings are invested - as you may need to switch your money into less vulnerable funds or investments. "For those whose pensions are due to mature in the next five years, it may be a good time to sit down and evaluate your pension portfolio - and assess the risk level of your funds," said O'Neill.

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