About four million employees are members of DC defined contribution pensions such schemes, and 86% of them are paying their money into so-called "default" funds. These tend to be partly invested in UK government bonds, in some cases heavily so if an individual is close to retirement.
In recent years the price of UK government bonds has had its very own bubble.
"There has been a big inflation of government bond prices, which may not be over, and it may be some considerable time until they deflate, but at some point they will have to come back down to earth," says Laith Khalaf, pension investment manager at fund supermarket Hargreaves Lansdown.
"Gilts are seen as a very safe asset, but actually at their current prices there is a potential for capital losses."
There are three related reasons bond prices have risen. Both here and abroad, governments have cut interest rates to try to stave off recession. This has had a knock-on effect on UK government bonds, known as gilts. As the Bank of England base rate has fallen to 0.5%, the fixed rate of interest paid by the gilts has become correspondingly more valuable and their prices have risen.
Gilts have also been seen as a "safe haven" by foreign investors who have been buying them during the turmoil in the finances of the Eurozone.
If you are trying to make sense of your pension our experienced Independent Financial Advisors at Enable would be able to talk you through your options.
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