June 2010
As you will have no doubt have seen in the news, BP is under serious pressure after the explosion at its Deep Water Horizon Oil Rig in the Gulf of Mexico. Many figures are being banded around but presently there is no way of knowing what the final cost will be for BP – in clean up bills and compensation claims – and its share price has fallen around 40% since the beginning of May, but has recovered somewhat after Tony Hayward’s (BP’s CEO) meeting with President Obama.
Before the crisis, BP made up almost 7% of the UK stock market, meaning that many pension fund investors are exposed to what happens to BP and so is there a need for pension fund investors to be concerned?
A company of such dominance in not only the UK stock market but the global stock market is a concern for anyone invested but its impact on an individual’s situation could vary significantly, depending on the type of pension you hold.
For those with an institutionally run company scheme, whether you are facing retirement or are already receiving your pension, the National Association of Pension Funds (NAPF) considers you have little to worry about. They estimate that such pension funds hold only about 1.5% of their total assets in BP – far below the market weighting of 7% - and that the institutions in charge will be watching the situation carefully to make the right sell or hold decisions on your behalf.
Similarly, for those who have retired and already receive a fixed or guaranteed annuity, your payments are no longer impacted by stock market issues and, unless you rely on other equity based investments, you should be able to rest easy on the news.
However, for individual pension fund holders still coming up to retirement or anyone in retirement who has an investment linked annuity or pension drawdown (unsecured pension), the situation may be a little more complicated. There is still no reason to panic, but the impact will depend on where you have chosen to invest your money and how those options fit together. It may therefore be worth using the news as an excuse to review your pension and investment selections, even if just to make sure they still meet your needs.
If you have any concern at all about your pension or wish to instigate a review, please contact your adviser at SMG FS Ltd who will be happy to discuss the situation with you and advise you accordingly or if you are not a client of SMG FS Ltd, we would be happy to review your portfolio and offer our advice on the best course of action to meet your future needs.
Please give us a call on 0113 3873470.
