Tuesday 10 December 2019

Question of Finance: How do I balance risk and growth in pension?

Q: I AM 58 years old, self-employed and within 10 years of my planned retirement.

After seeing my friend's pension lose almost one third of its value just before he retired in 2009, I am concerned over the security of the lump-sum contribution I intend to put into my pension fund this year. How can I reduce risk without eliminating all the growth?

A: There are a number of options open to you. Clearly, any solution that carries all of the risks associated with full equity exposure is unlikely to appeal to you.

Other investment choices that are traditionally associated with a high level of growth may also prove too risky.

Corporate or government bonds are 'guaranteed' and should offer total security while generating a modest level of growth.

You will no doubt be aware that the returns on government bonds have risen considerably recently, though there has been a corresponding undermining of the perceived quality of the capital guarantee offered through these investments.

Placing your savings in a cash fund will also secure the capital, though the growth generated after management charges is unlikely to be very fruitful -- probably less than 2pc per year.

There are a small number of hybrid-type pension investment products that seek to secure your capital while providing a reasonable level of exposure to those types of investment assets that could generate returns higher than cash or bonds.

Pension trackers are one such option. Similar to a non-pension tracker, this form of investment carries a capital guarantee at the end of the term, which would be under the 10 years left to your retirement, while granting you access to equity markets generating the potential for a reasonable level of growth during the remaining years until your retirement.

  • Keith Butler is head of sales and an actuary at Acorn Life

Irish Independent

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