# Pension in a Recession



## bloodyhell (5 Jul 2012)

Any old timers around that have been through recessions and experience with pensions ?

I have a pension with the company i work with for the last ten years. It has been in a safe non-risk option fund all this time so has not been affected by the current recession but not growing much either.

I now want the pension to start earning something (hopefully) so prepared to move some into a higher risk fund option maybe within the next 6-8 months

Anyone have advice on investing some of their pension into a high risk fund towards the end of a recession ?

As i am not knowledgeable on pensions, can someone advise if the timing of moving some of the fund to a high risk option is similar to stocks. (e.g. for argument sakes, if all the markets dropped tomorrow to all time lows and then i switched part of my fund to the higher risk fund option, would any future pension gains be calculated from the all time lows for the entirety of the pension)


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## Marc (6 Jul 2012)

Markets are forward looking. By the time you are aware that there is a recession stock markets are typically already going up.

The best solution is to decide how much risk you are willing to take on, put that much into equities and leave it there.

The only ongoing maintenance should be periodically rebalancing your allocation back to this target.


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## kennyb3 (6 Jul 2012)

Marc said:


> Markets are *forward looking*. By the time you are aware that there is a recession stock markets are typically already going up.



In the past this may have been true but just look at them hang on everybit of euro news these days. They are jittery. There is so much uncertainty around at present.


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## Jim2007 (6 Jul 2012)

kennyb3 said:


> In the past this may have been through but just look at them hang on everybit of euro news these days. They are jittery. There is so much uncertainty around at present.



You know what they say about the "this time it is different" theory? - it never is!


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## bloodyhell (6 Jul 2012)

my question though is how are pensions calculated (i.e. if you got into a high risk fund when markets were very low, are you in at a set price or something (like stocks) or is the slate wiped clean every year and the fund is calculated differently


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## LDFerguson (6 Jul 2012)

bloodyhell said:


> my question though is how are pensions calculated (i.e. if you got into a high risk fund when markets were very low, are you in at a set price or something (like stocks) or is the slate wiped clean every year and the fund is calculated differently


 
Most pension funds are priced daily, although some calculate prices less frequently.  For a daily-priced fund, you buy into the fund at the price on the day and then the value of your units goes up or down according to the fluctuations of the unit price thereafter.  

Does that answer your question?


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## bloodyhell (6 Jul 2012)

Thanks LD.

I probably didn't word my question correctly as i'm not too familiar with pensions and how they work. This is the reason i left it in the safe fund so far for 10years.

I'm familiar with stocks and forex etc. and was trying to get a feel how they were calculated.

So for arguements sake, if there was a market crash and i moved into a fund on January 2013 where unit prices were 3, could this be an all time low for the unit price of that fund if you got in at the bottom (and so you could risk staying in this fund for quite some time?) 

Or does the unit price reset each year

Or am i making any sense at all


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## Marc (6 Jul 2012)

For practical purposes, unit prices work almost exactly the same as a share price. As prices fall you buy more units as prices rise your units are worth more.

So you are correct in your assumption that if prices collapse you will buy lots of units and as prices rise this will add to the value of your pension fund.

But to put this into the context of my original post timing the bottom perfectly is impossible and for practical purposes you should allocate your pension to equities all the time in proportion to your need, willingness and capacity for risk.

As a general rule of thumb your allocation to equities should be 100% minus your current age.


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## bloodyhell (6 Jul 2012)

Hi Marc, thanks for reply.

Yes, i know it's impossible to time the market but perhaps in the near term some european funds may fall so unit price may become cheaper

I like your general rule of thumb on allocation to equities (100% minus your current age)


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## bloodyhell (6 Jul 2012)

One final question. Can you change over for example 30% of your fund to high risk equities at any time of the year. 

I don't want to seem completely dumb when i contact my pension company


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## Marc (6 Jul 2012)

Yes you should be able to make a few free switches each year in any proportions you decide.

Check how many free switches you are allowed to make with your pension provider.


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## marathonic (26 Jul 2012)

My company allow us to change contribution levels once every 2 years.

Over the past 6 years, I've increased contributions as the stock market fell and decreased them as it rose.

I'll be 30 next year and will be decreasing my contributions - contributing the minimum of 3% required to get my employer contribution of 6%. The main reason for this is a house purchase.

I agree with the previous posters that it's impossible to time the market but I reckon it's probably a good idea to set a minimum and maximum contribution level and vary it between these depending on what the market has done the previous year(s).

For me, I'll be increasing to the maximum allowed under pension rules the next time the market suffers a 10%+ fall over the previous year (and keeping it at this level for 2 years before re-assessing).....

That's the plan anyway!!!


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