De-risk your pensions and investments

Following the start of the latest conflict in Iran and the subsequent fall in global equity prices, I have been asked by several people if they need to change their investment strategy as the outlook is very uncertain and they are concerned that things could get much worse.

At times like this my reply is always the same – there is no need to panic, but I realise this may sound patronising, so I add a caveat. Providing you are invested correctly in the first place there should be no need to rush to change your investments.

This begs the question, what does it mean to be properly invested? The short answer is a well-diverse portfolio in line with your risk profile.

I have been worried about global equity markets since Trump imposed tariffs last April and consequently have reduced the risk in many of my client portfolios.

Yesterday, I received a stream of emails from some of the leading investment houses in the UK and the messages are very similar – stay calm and remain invested.

One well-known investment house wrote:

“although geopolitical risk is currently at the highest level in decades, global equities have historically delivered strong long-term returns despite major geopolitical shocks. It is a powerful reminder that markets have navigated conflicts and uncertainty many times before and that a long term discipline continues to be rewarded.”

I agree with this with the caveat above about being invested correctly in the first place.

De-risking

I thought it helpful to share some of the de-risking strategies I am discussing and implementing with clients.

These include:

• Switching to lower risk investments
• Investing in fixed term income plans
• Arranging annuities

Switching to lower risk investments

It may too late to sell equity funds and buy lower risk funds at the moment (4 days into the Iran conflict) but following the stock market crash following Trump’s tariffs in April 2025, I suggested some clients de-risk some of their investments for example moving into smoothed returns funds as well as moving into cash or money market funds.

Obviously, the investment advice was specific to personal circumstances and in line with their attitude to risk and capacity for loss but generally speaking, as people get older and move along their retirement journey the less risk they should be taking.

There are many option and strategies will be influenced by the way in which pension pots will be converted into income. For instance, those taking or intending take income by way of pension drawdown may want to hold a few years’ worth of income in cash. Those intending in purchasing an annuity can consider hedging against long dated gilt yields.

The lesson from recent years which includes market crashes from Covid and tariffs is that it makes sense to implement de-risking strategies ahead of market crashes rather than waiting for a crash and scrambling to de-risk then.

This is all fine in theory but very difficult in practice and there is no substitute for regular contact and reviews with a trusted financial adviser.

Investing in fixed term income (annuity) plans

With these plans you invest your pension pot with an insurance company who can provide both a guaranteed income and a guaranteed maturity value for a fixed term.

One option is not to take an income thereby maximising the maturity value. For example, £100,000 invested in a fixed income plan with no income will payout £125,000 in 5 years’ time. This is an effective rate of 4.5% per annum.

This return is higher than available from bank deposits and most money market funds and it is guaranteed no matter what happens to interest rates.

With the likelihood of lower interest rates in 5 years’ time and with concerns about equity returns this may be a good way of reducing risk in pension pots.

Arranging an annuity

I am often asked when is the best time to arrange an annuity. There is not an exact science but intuitively I think it is between ages 65 and 75. Before age 65 there is a strong case for maintaining flexibility and option for lump sum death benefits but after 75 there is a strong case for maximising one’s income (and their partner’s) lifetime income.

Perhaps a better way of working out when to arrange an annuity is when you want ‘peace of mind and security’ and this can be any age.

Annuities can be misunderstood. Instead of highlighting the negatives e.g. loss of capital and control and looking into income for life, the advantages should be considered which include:

• Guaranteed income for life - Can continue to spouse or partner
• 
• High rate of return - Currently locking into an effective interest rate of about 5%
• 
• No investment or default risk
• 
• Peace of mind and security

It is also important to appreciate that annuities can be arranged in slices so there is a case for locking into annuities in stages as part of an overall de-risking strategy.

No mention of annuities is complete without a comment about value for money and future trends. Although annuities may be just past the current peak they are still at very high levels compared to the lows after the 2008 credit crunch and should remain at close to current levels for the time being. It does seem that interest rates are on a downward trajectory so we can expect annuity rates to ease over the coming years, but recent events in Iran and the spike in oil process, which if maintained will result in higher inflation, may slow down the downward trends in interest rates.

Conclusion

It is at times like this when an unexpected event causes severe market volatility that the risk of investing in global equities becomes a reality.

However, all the conventional investment wisdom suggests that investing in equities long term is beneficial and short-term fluctuations are to be expected and quickly fade into the background.

But perhaps one day there will such a catastrophic event that investments may fall significantly and cause real financial hardship.

All of this means that risk should be taken seriously and the older you are the less risk you should take. Therefore, it makes good financial sense to consider strategies to reduce risk as you get older.

Don’t forget, it is not only investment risk you must consider there are many other risks including: risk to income, inflation, health and longevity.

There is no single solution that effectively hedges against all of these risks so a combination of options should be considered.

The content of this do not constitute financial advice and are for general information purposes only and contain information only relevant to UK investors.

The Annuity Project is hosted by William Burrows and provides unbiased information on annuities and pension drawdown.

The content of this do not constitute financial advice and are for general information purposes only and contain information only relevant to UK investors.

We use reasonable care to ensure that the information and material appearing on these broadcasts are accurate and up-to-date. However, errors and omissions may occur so users should not take the accuracy of the information for granted.

Please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. Tax rules can change and the value of any benefits depends on individual circumstances.