October 2007 saw the takeover of ABN Amro by a Royal Bank of Scotland consortium. Few would have predicted that within a year almost two thirds of RBS would be owned by us, the UK taxpayers. This is one of the clearest examples of the financial turmoil reaching into every aspect of our lives - who we bank with, how much we can borrow, whether we have a job. Pensions are no exception. The steep market falls in the tumultuous early weeks of October will have seen 20% or more wiped off the value of many defined contribution pension plans.
Probably the most significant impact of the current conditions is the lack of confidence in the markets. This is the case for analysts and banks but also for everyday investors. People will be seeking reassurance and advice on the steps to take. Should they take pension benefits, switch investments, defer taking benefits or stop making contributions? This is an opportunity for advisers to build relationships by helping people through this difficult period.
For those savers a distance away from retirement, continuing to save as much as current circumstances allow, while also reviewing their ongoing investment strategy, may well be the best option. It may also be a good time to invest with markets at a five-year low.
Those nearer retirement will hopefully be at least partly protected by life-styling options, but some may have to consider deferring benefits and continuing to work. Those who need to take pension income now have the option of phasing benefits, taking some income so they can live through the next year or so, while leaving the rest invested.
While it may be more difficult to get people to save more money over the months ahead, they will want to make sure that existing savings are safe and secure. Products such as SIPP can give transparency - the simple ability to view their holdings online, as and when they want, will give people added confidence in the current climate. If there is one key message we have all learned from the last few months, it's don't put all your eggs in one basket. SIPP allows people to diversify their savings without the hassle of setting up and looking after multiple contracts.
There are also many tools and options to help people cope with market turmoil. The ability to drip feed single payments into a client's chosen investments avoids the risk of investing when markets are relatively high. This can be achieved on an automated basis with funds being gradually invested over three, six, nine or twelve months.
Many safer investment options have also appeared recently. For example, fixed rate accounts for six and twelve month periods, and structured products which offer another less volatile alternative. These link investment growth to the performance of an index, such as the FTSE 100, without the risk of investing directly in the stock market. Shorter term options of one and two years are now available, providing a guarantee that the initial capital will be returned at the end of the chosen period.
With some large high street companies struggling, people undoubtedly need reassurance more than ever. Illustrating the benefits of when and where to invest and preventing inappropriate kneejerk reactions are crucial in helping clients through these turbulent times. The impact of the credit crunch will vary enormously so, whatever the client's circumstances, the need for financial advice has never been greater.
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