Even from birth, we are tied into the notion of saving for the future. Although not our children’s own money, modern day Child Trust Funds and similar bond schemes are in many ways the same as a pension. From whenever we start work, we are often invited to join a company’s pension scheme, and begin saving for our future.
We also do that through our national insurance contributions, as well as having other options for opening private pension plans.
The British Government has this week unveiled plans to allow pensioners to insure their savings, so they do not suffer large losses should the markets crash.
It is hoped that a scheme such as this will give pensioners greater confidence to save, and while not announced as a primary reason by those behind it, it must surely be hoped that this will lead to increased private equity investment and added impetus for the markets.
But what could the larger-scale impacts be?
The Risk/Reward Conundrum
What is yet to be made clear is whether or not the proposed insurance scheme will simply cover general market downturns, or whether it will act as a general protection against an investment loss. If the latter is true, then the plans could prove catastrophic for businesses who rely on investments that are low risk and offer a low return.
If the scheme is put in place in such a way that bigger losses are going to be protected, this will potentially lead to a culture where everyone simply invests in the highest potential return, regardless of risk, as they know they are covered and will be returned their initial “stake” so to speak.
The Balancing Factor
Of course, what is likely to prevent this from occurring is individuals who realise that they do not have enough saved to live comfortably in the first place. Private equity advisors would also have to be extremely daring, almost maverick, to recommend such a course of action to their clients.
Common sense is most likely to prevail in most cases, which should see the smaller investments that can almost guarantee a small return continue to attract the investments they need.
Pension insurance will merely give peace of mind to individuals that they have some level of protection against volatile markets. Whether that will have a long-term impact on levels of investment ultimately remains to be seen.
Anyone who does decide they would like to explore investment opportunities, as well as pension managers, could use platforms such as Dealmarket to discover great information related to the financial markets and find excellent investments. People would still be advised to use private equity advisors and other finance professionals to ensure they are making the right decisions both now and for their long term future.
Author Bio: James Allen is a private equity investor currently working with a number of different groups to try and find the best investment options for those looking to grow their pensions. James works in a central London finance office enjoys being active in his free time.