If we have learned one thing since the economic crisis of the previous decade, it's the fact that nothing remains static in the financial sector. A pensioner could set him or herself up very nicely with an occupational pension only to find that retirement income is not what was hoped for. The solution is to take some of those pension funds – assuming you have not already purchased an annuity – and reinvest them elsewhere.

Other Investment Options

Pension freedoms have made it possible for workers to hold onto their pension pots even after retirement. In other words, it's no longer obligatory to purchase an annuity when you stop working. Instead, you can draw down from your pension pot gradually. You can even take it as a lump sum if you want to.

Assuming you will continue drawing down, you can take some of the cash in your pension pot and invest it elsewhere. Below are several examples, some of which would help in a downturn and others that would not:

  • Standard Bonds – Bonds tend to do poorly during periods of economic stagnation. Government bonds do not produce well because their returns are tied to interest rates, which also tend to fall when the economy struggles. As for corporate bonds, large-scale offerings tend to be the domain of companies that are already struggling financially. Such bonds are risky during economic downturns.
  • Retail Bonds – Retail bonds are entirely different. They are typically offered by well-established, blue-chip companies looking to raise cash in order to take advantage of expansion opportunities in a slow economy. These bonds generally pay very modest returns and can be counted on for their reliability.
  • P2P Platforms – Peer to peer lending has proven itself worthy of investment over the last ten years or so. They have shown exceptionally strong resilience even in trying economic times.
  • Commercial Property – Commercial property did take a hit during the financial crisis, and then another hit in 2015 as foreign investors started pulling their money out. The good news is that commercial property funds are rebounding nicely.
  • Residential Property – Residential property may be a good investment for some, but it's risky for others. Anyone considering buy-to-let needs to look at both individual purchases and investing in property funds. Fund investments tend to be a bit safer.
  • Stocks and Shares – Stocks and shares tend to be a mixed bag regardless of economic conditions. During a downturn, investors are better off seeking dividend stocks rather than performance stocks. As the economy recovers, investments in stocks and shares can be more evenly spread across dividends and performance.

Pensioners no longer have to settle for what they have in their pots at retirement and simply hope for the best. Thanks to pension freedoms, they can now withdraw money from their pots for the purposes of investing it in more lucrative vehicles. And in times of economic downturn, doing so is almost imperative.

The one caveat that applies to all investing certainly applies here: do not pull your money out of a pension and invest it elsewhere without first seeking expert, qualified advice. Remember that you're trying to increase retirement income, not jeopardise it.

About Us
Alfred Maki

Founding Partner, Investment Strategist

Alfred is a global investment specialist with more than 20 years’ experience. Having started his career as a trader, Alfred has spent years learning the intricacies of the various markets including stocks, bonds, commodities, consumer financial products, property, and more.