Money Matters Jul 10

I read a recent news headline about BP’s problems and the impact it will have on our Pensions.  I have an Executive Pension with Aviva which invests in their Managed Fund.  Will it have been affected, should I be concerned and what if anything should I do?

Answer:

According to Aviva’s May 2010 Fund Fact Sheet their Balanced Managed Fund has 1.90% of its value invested in BP Shares. Should you be concerned?  Obviously BP has some well publicised problems and this has affected their share price and at time of writing there was some debate as to whether BP would be paying a dividend.  A falling share price and loss of dividend would impact the value of your Pension, but even if BP disappeared tomorrow the direct cost/loss to your Pension would be 1.90%, you would still have the other 98.10%. If BP did fail, which I suspect is very unlikely; it would have an impact on world stock markets which in turn would see the remaining 98.10% fall in value.  However, markets would eventually recover and with them your Pension.  What should you do?  You cannot instruct Aviva to sell BP; buying and selling shares in the Fund is down to the Fund Manager not the Policyholders.  If you were particularly concerned though you could switch out of the Aviva Managed Fund in to another Aviva Fund (there may be a charge to switch funds and as always get advice first), one that is unlikely to hold BP shares.  Examples could be their US Equity, Far East or Property Funds.  Funds NOT to switch to in this scenario would be the Aviva UK Equity Fund which has 4.20% in BP and the Aviva UK Index Tracking Fund which has 6.40% in BP.  However, Switching Funds just to avoid holding one particular share seems a bit drastic and ultimately unnecessary.  Especially when you consider that there will always be Companies that your Pension invests in which do badly, some may even fail.  However, there will be companies that do well and hopefully these will make up for the bad ones.  This is not a new problem; it has always been there it is just that BP has been getting a lot of coverage.  If you switch Funds you also need to be sure that the new Fund is compatible with your Risk Profile.  Finally, BP’s problems do demonstrate the benefit of using Investment Funds to invest as you have a diverse portfolio of shares and other assets rather than buying Direct Shares where you could easily become too concentrated on one particular share.

Any reader interested in discussing this topic further can telephone Peter Sharratt on 01344 875000 or email peter.sharratt@kirkrice.co.uk

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.