Pension: These are the risks which some savers may opt to avoid – money could be lost

Pension saving is usually undertaken over many decades, and most people have the aim or goal of growing their money significantly to achieve a comfortable retirement. This often involves investing in certain areas, or placing money into certain funds which offer a healthy return. Some savers are adventurous in the quest to help their money to multiply, while others are more conservative and reserved.

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However, there are risks that many people could be unaware of, and it is important to understand these in order to protect one’s pension arrangement.

Express.co.uk spoke to Peter Glancy, Head of Policy, Pensions and Investment at Scottish Widows, who described the risks commonly involved in pension savings.

Mr Glancy also touched upon the ways in which savers could tailor their arrangements in a way that avoids potentially haemorrhaging savings.

He said: “There are risks people may be unaware of particularly at this time. 

“Research shows 70 percent of people in workplace pensions don’t know their money is invested. A lot of people don’t understand this pot goes up and down with the value of the stock market, and then they may get a bit of a fright when the market falls quite significantly, as it has done recently.

“If you are younger, in the long term, it is usually better to take more risks. This usually means being in equities – shares in companies for example. Over the long term, that is the asset that grows the most.

“Whereas government bonds are very safe, but they pay a smaller return, often below inflation.”

Mr Glancy said that many people chose to move their money as they grew closer to retirement.

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Pension managers can transfer money into more volatile equities into safer arrangements such as government bonds in the quest to provide stability. 

This is an arrangement known as life styling, and very popular for Britons looking to manage risk and reward.

While these do not offer quite as much growth in the final years, they do provide more certainty, and can enable savers to retire early if they should so choose.

However, Mr Glancy also highlighted another risk which often pops up for pension savers.

He added: “One big risk is where people, particularly with bigger pots, are targeted by specialists in the pensions market.

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“You might be persuaded to take money out of your private or workplace pension to plan into a Self-Invested Personal Pension known as a SIPP.

“There are very little limits there in terms of what that money could be invested in, and some of these can be very exotic and complicated.

“The investment may go wrong, and you could end up a lot or all of it out of pocket. The Financial Services Compensation Scheme (FSCS) is currently paying out record amounts of compensation in relation to these SIPPs and risk investments.”

Finally, Mr Glancy touched upon the issue of pension scams, which are becoming increasingly prevalent, particularly within the COVID-19 era.

He encouraged people to think very carefully before parting with their cash, as people can often be duped with ease by highly intelligent cybercriminals looking to make money.

Mr Glancy urged research to be undertaken by savers, and advice to be taken if necessary.

The Pensions Regulator says it is vital for Britons to manage risk in their investment.

It has also told pension providers they should put protections in place to ward against cyber security and scam threats, and has also promoted openness and transparency with customers. 

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