Millions of pensioners could be at risk of losing £90,000 - report

Millions of UK pension savers could potentially lose tens of thousands of pounds due to the country's economic instability. A Telegraph investigation revealed that if pension providers have shifted their pots to poor investments, people's savings could be at risk.

The report suggested that an average pensioner could be £90,000 worse off, with one saver losing a third of his £330,000 retirement fund. Gilt yields are on the rise again due to the threat of trading tariffs from US President-elect Donald Trump, putting many pension savers with lifestyle funds at risk, reports the Express.

Government bonds, or gilts, have traditionally been viewed as a safe investment option, particularly during periods of low interest rates. However, recent increases in interest rates have resulted in significant losses for pension savings.

Experts warn that this risk is particularly relevant for those nearing retirement age. According to the BBC, the increase in bond yields may also be attributed to the underperformance of the UK economy.

Chancellor Rachel Reeves has faced criticism for her failure to stimulate the economy since Labour took office in July. Bond yields have been increasing since August, inflation is at an eight-month high, and the economy has contracted for two consecutive months.

Charles Stanley, a noted investment management firm, has pointed out the significant impact investment choices can have on pension savings. According to their analysis, a saver with a £150,000 pension pot five years ago could now have £210,000 if 80% of their pension was invested in shares.

However, if those funds were in bonds, the value would only be £120,000, underscoring a staggering £90,000 difference. This scenario particularly affects those whose pensions are in default funds, which typically shift savings into bonds as they are considered low-risk investments.

Concerns have been raised about the effectiveness of 'lifestyle funds' for investing pension pots, with experts and industry leaders calling for a re-evaluation. Former pensions minister Baroness Ros Altmann was quoted in the Telegraph saying: "It has been a massive disappointment to me that pension companies have simply failed to rise to the challenge of developing new products."

The call for change is echoed by specialists urging regulators to assess lifestyle funds and encourage alternative investment options. Addressing these concerns, a government spokesman emphasised trustees' responsibilities and the administration's dedication to economic prudence to the Telegraph: "Pension scheme trustees have a duty to act in the best interests of their members, and the Government requires them to provide information about the investments chosen on their behalf."

Moreover, the spokesperson affirmed the Government’s resolve, saying: "There should be no doubt of this Government's commitment to economic stability and sound public finances.

"We are meeting our fiscal rules – both the stability and investment rules are met two years early, and from this point we are only borrowing for investment and net financial debt falls."