Defined contribution investors risk making serious mistakes with their hard-earned pension savings, especially those with poor access to advice, experts have warned.

Savers on the brink of retirement have witnessed significant falls in their pension funds due to the coronavirus crisis, but while those in defined benefit schemes can breathe more easily, experts have warned those who are part of DC schemes run the risk of making knee-jerk investment decisions that could irreparably damage their retirement dreams.

According to Simon Harrington, senior policy adviser – public policy – for the Personal Investment Management and Financial Advice Association, these savers are more likely to rush into cashing in their pension to avoid further potential market losses and shifting it into high-risk investments that offer appealing returns.

He said: “We are concerned that those who might have hoped to retire in the next couple of years might be tempted into rash investment choices or be taken in by suggestions that they might be able to recoup their losses more quickly in order to achieve their retirement dreams.

“There are bound to be a lot of anxious investors at present. Telling those feeling worried about their savings to keep calm and be patient may not be the most appealing message, but in most cases it remains the best course of action.”

Steve Webb, partner at consultancy LCP, agreed there was a real risk that DC investors in particular, because they bear the investment risk themselves, may be tempted to take the wrong action out of fear.

According to Mr Webb, the biggest risk is that people conclude ‘mainstream’ investing has failed, and instead feel the need to try something exotic, which promises high yields at a time when their traditional investment is performing badly.

He said advisers should alert clients to the fact there are many rogue operators ready to prey on the unwary.

Dr Anna Tilba from Durham University Business School has stated: “Coronavirus is creating favourable conditions for scammers who prey on vulnerable people and take advantage of panic, uncertainty and financial strain.”

With lockdown causing financial worries for many families, the Association of British Insurers has also been warning people not to view their pensions as a quick way of raising cash, and to think twice before making any rash financial decisions during this uncertain time.

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