Where should i look to use my pension contributions?

Q: The company I work for is ending its defined benefit pension scheme.

I've been in the scheme since 1983 and have accrued 27/40th of my full salary. This pension will be maintained separately from a new defined contribution pension that the company is now offering in its place. I also make extra contributions through an additional voluntary contribution scheme.

I am 55 years old and want to know if, at my age, I should put all my future pension contributions into cash funds for security? Alternatively, should I invest some in equity and property and maybe only half in cash, on the proviso that when I turn 60 I will transfer all of the pension into cash?

A: Philip Pearson is a partner at P&P Invest in Southampton.

A defined benefits pension scheme is theoretically guaranteed. If the scheme has received adequate funding over the years, then this pension is available to you, without investment risk, from the scheme's retirement age.

You can therefore afford to take some degree of risk with the new pension, as the benefits from this are likely to be only modest, given the limited period in which you'll be investing.

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You need to decide when you wish to retire, as this will determine the most appropriate strategy to maximise the investment over the remaining period.

Although a cash fund would be low-risk in the short term, the returns are poor and insufficient to combat the effects of inflation, which is currently around 4.5% as measured by the retail prices index.

An alternative approach would be to select fixed-interest funds investing in gilts and corporate bonds, which provide a cautious approach towards investment, but with a return greater than cash.

Some equity exposure should be considered if your investment term is between five and 10 years, because the chances of losing money from investing in the stockmarket are dramatically reduced as your investment will have time to recoup any potential losses.

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