Protection, protection, protection

Combating the effects of inflation

For pension investors it is a reminder to think seriously about how to protect retirement income from the effects of inflation.

Rising inflation will have a detrimental effect on your pension, cutting the purchasing power of a level pension significantly over 20 years, which means that you would get steadily poorer throughout your retirement.

While you are still accumulating your pension pot the easiest way to combat the effects of inflation is to link your pension contributions to your earnings and conduct a review each year to make sure your asset allocation model is still effective.

If you are more than 10 years away from retirement and your attitude towards risk and reward is appropriate, it could be a good idea to keep the bulk of your pension portfolio in equities, which over longer periods tend to provide the best returns.

But if you are close to retirement then you should consider reducing the risk exposure of your portfolio and consider fixed-income products such as UK government bonds (gilts), corporate bonds and cash.

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