The UK stock market hit a record high on Tuesday, helped by a weaker pound and positive corporate updates.
The FTSE 100 gained 0.5 per cent to 8,059 points, surpassing its previous peak of 8,047 points in February 2023.
Economists and traders are also hoping that UK interest rates, which sit at 5.25 per cent, will fall faster than in the US, where they stand at 5.25 per cent to 5.5 per cent.
Some may be wondering how this affects their pension pots and whether they are likely to see gains as a result. i spoke to experts who revealed exactly what people can expect from the news.
Will my pension be affected by the FTSE 100 reaching a record high?
Pension funds are not normally overexposed to one kind of asset, including UK companies or those that make up the FTSE 100. They are normally invested into a mix of shares, bonds and property.
Most pension funds are also invested less heavily into UK companies than they were a generation ago: the likes of Amazon, Apple, Microsoft and Nestlé are more likely to feature in your pension fund than most British firms.
Laith Khalaf, head of investment analysis at AJ Bell, said: “Nowadays the fortunes of the Footsie are much less important to people’s pensions than the performance of the US stock market. Most pensions will have greater exposure to Microsoft, the US technology giant, than to the entire FTSE 100.”
Much of the difference can be attributed to the stratospheric rise of the US technology sector, a trend which shows little sign of abating, despite longstanding warnings of a stock market bubble.
Over the last decade the FTSE 100 has returned 77 per cent for UK investors, compared to 218 per cent from the global stock market.
However, record highs for the FTSE 100 should help your pension fund look a little more healthy, with some experts believing it will help those saving into a pot.
Kirsty Anderson, retirement specialist at Quilter, said: “The FTSE 100 reaching an all time high should also be great news for our pension pots.
“Many individuals with a UK pension will have exposure to UK equities which means if the FTSE 100 goes up in value – so does the value of your pension. For those who are invested here, you will see the value of your pension rise.”
How can I benefit from a high FTSE 100?
If you have a self-invested personal pension, which allows you to pick your own investments, then getting into a FTSE tracker fund is a great way to expose yourself to UK firms.
One of the best ways to do this is via a low-cost tracker fund.
You could also choose an actively-managed fund, which will have someone deciding how much of the fund’s money to allocate to each company included in the FTSE 100 index on a regular basis.
Anderson added: “Naturally, markets can fluctuate and while the FTSE100 increasing is great news, it is important to remember that if it comes back down then so too will the value of your pension pot. Pension savings are for the longer term, however, so periods of positive growth such as this will be good news in the long run.”