Record number face mortgage misery, Bank of England warns

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When the headlines are dominated by talk of market turmoil and phrases like “doom loop” are being bandied about, many people will be very anxious about whether their pensions are safe.

The good news is that, despite the market turmoil, people with traditional “final salary” type pensions can be confident that those pensions will be paid.

A key feature of this type of pension is that there is an employer standing behind it.

This means that when there is pressure or a shortfall in a company scheme, ultimately the employer will be called upon to help out.

And even if the worst came to the worst and the employer went bust, the pension payments would still be backed by the “lifeboat” Pension Protection Fund which provides a high level of cover.

The pension schemes we are talking about are not insolvent – far from it.

In fact, collectively they are sitting on around two trillion pounds of assets.

The problem has simply been one of ready cash.

It is a bit like a household getting an unexpected bill or tax demand and not having money in the current account to pay for it.

A household might have to raid their savings to pay the bill, and pension schemes have been doing that, as well by selling assets.

The problem is that the process of selling those assets has driven the price down and led to new demands being issued.

The Bank of England was right to step in last week to underpin the value of government bonds, but wrong to end that help this Friday.

Until the Chancellor sets out the Government’s plans on October 31 there will be ongoing concern about the public finances.That means the Bank should be ready to maintain orderly markets until that point.

For people with the more modern “pot of money” type of pensions, the last few weeks and months have been pretty bruising.These funds have often lost value and these falls may mean some people having to rethink their retirement plans.

But it is important for savers not to panic when markets fall, as there is a danger of selling up at the bottom and locking in losses.

There have been recent market falls – such as when lockdown was announced – which were quickly reversed, and the same could happen again.

The key is to remain calm and take advice before making any quick decisions which could have long-lasting consequences.



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