Final years hold the key to the value of pensions

sipps

Pension fund asset allocation is vital in the years running up to retirement because income is firstly calculated on the overall value of the fund and secondly on prevailing annuity rates

With a reasonably stable outlook for long-term interest rates there is less scope over this decade for wide variations in the annuity rates, hence more attention should be given to the value of the fund at retirement. The return in the last few years of a maturing fund can be more important than the growth rate for the preceding 20 years. A hypothetical fund with contributions of £1,000 for the first 10 years, which grow to £2,500 in the next 20 years and £5,000 in the final 10 years, with a consistent growth of 7%, achieves 34% of the return in the final five years. If the return rate fal...