Recent turbulence in the bond market may leave many investors wondering what it means for them.
A government strapped for cash and keen to restore stability may be tempted to target the pensions triple lock. As it stands, the triple lock guarantees the state pension will rise by 2.5%, average earnings or inflation, whichever is highest.
Some analysts, such as the Prime Minister’s former economics adviser, Lord O’Neill, believe a reform would do much to placate the bond markets at a time when government borrowing costs have risen to a level not recorded since the 2008 financial crisis.
For people planning for retirement in Cheshire or Oswestry, the impact could be felt in terms of lower prices for gilts as they reach pension age. Whilst investors in these government bonds will still get fixed cash payments known as coupons, those approaching retirement may have more cause for concern as pension pots are moved into gilts.
People in this position may be advised to review their investments, particularly if they have adopted a ‘lifestyling’ strategy that shifts equities into bonds. For younger investors with a pension, that money is unlikely to be in bonds and, in some cases, a FTSE drop may bring good news as it could result in more shares for your cash.
It is worth remembering that markets go through frequent rough patches, during which a cool head is needed to weather the storm. With higher gilt yields generating lower annuity prices, someone looking to exchange their pension for an annuity may not actually be worse off.
