essex_chris
Pension funds losing money is just something that in principal is lost on me - it won't happen when i'm in charge.
I can understand having £X of pension money invested and having a bad year or two or three, but should the pot ever drop back to a certain point you'd stop and have it invested in something safe.
I can have a cast iron guaranteed rate of return with my money safe all over the world - it might not make a lot of money but it will still be there.
Pensions should be a big savings account which is secure and safe and how anyone can pretend that something so essential and important should be risked on anything that chances a loss is really something i don't understand.
I've had people try to tell me why you have to make that kind of investment to make any money but they have always come across as brainwashed and have never actually considered what they are saying instead of regurgitating what they have been told.
The idea that even 0.01% of people putting money into a pension can end up with less money than if they simply stuck it under their mattress over the years is inexplicable without somebody being to blame or a wholescale currency crash ala Nigeria or WW2 era problems.
If i'm talking tosh and their is a simple explanation please enlighten me - it may very well save a lot of investment bankers lives when i assume power 
Happy to try mate, though if you still wanted to kill the risky investment bankers, that would be fine. The guys who look after pension funds are slightly different animals.
Clink on the link I provided on the previous page. The lines to look out for are RPI (retail price index, a measure of inflation), in light blue and the deposit return in purple. Below it. There's the significance. Over the long term, your safe deposits will be outperformed by inflation.
This means that if your interest rate was 2% after tax (currently generous) and the inflation rate was 3% and a Ford Focus was £10,000. In 12 months time, because of inflation, It will cost £10,300. Your bank acount will have £10,200 in it. Your money no longer has the purchasing power to buy a Ford Focus. If you then multiply that until you hit retirement age, you'll see that potentially, you're in trouble. Obviously interest rates and inflation rates change, but that is a gamble itself.
So for someone who is worried about losing money, your proposed method will actually lose you money in real terms.
If you look at the top performer on that chart. You'll see it's equities. You'll also notice that with the ups, there are downs too. If you look at significant happenings, like the Winter of Discontent in the 1970's, represented by the sharpest drop in value;
at no time does the value actually drop lower than the initial investment.
If you had invested the year before the winter of discontent, you would have lost money on your original investment, it took 3 years to get back to the same level it was prior to the drop. That's why shares are suitable for pensions. It's a long term thing. The long term enables you to ride out the drops. Fast forward 20 years and the slope is generally upwards. In the short terms, due to the costs of trading and risk to your money, deposit accounts are your best option.
What if I told you that the drops in markets represented fantastic times to invest? It's called "pound cost averaging". To explain how that works, I first need to explain how shares are able to outpeform deposit accounts on the long term.
When you put your money in the bank savings account, your comfortable that your deposit will not physically reduce. The bank will pay you interest which they earn by loaning your money out. So you earn bits and bobs of interest, but your deposit essentially stays the same value (yes the interest is applied and then you earn more interest, but seperate the two for now).
When you invest in shares, your shares will have a buy value. Say your £100 buys you 100 shares at £1 each. This is essentially you owning a bit of a company, 100 bits to be precise. As an owner, the company will pay you dividends, which you could keep or use to buy more shares. Very much like interest. But here's the difference. The actual value of your shares can also increase or decrease. If the value of your shares increases to £2 a share, your holding is now worth £200. Plus you're still getting that lovely dividend too. So you can win in two ways. This is why shares outperform deposits.
I understand your concerns with the risk to value of peoples investments, but that risk gives the invester the chance to get a better return and achieve their financial long term goals.
So pound cost averaging. Lets say you bought your 100 shares at £1 for £100 total. Next month, the shares half in value. Your holding is worth £50, as the share value has halved. You've made a paper loss. You've not lost anything as you still have 100 shares. If you sell at that time, you'd be realising your loss and getting £50.
Hold on though, you have £100 in your pocket. The shares are 50p each. Therefore, you buy another £100 of shares, but get 200 instead of 100. So now you have 300 shares in total.
Next month, the share price increases to £2. You put £200 in. Your holding is 300 shares. Their value is now £600... The only downside is your £100 will only buy 50 shares.
Essentially, it's a way of averaging out peaks and troughs. Over the course of the life of your investment. Say 20 years of £100 a month, by pound cost averaging, it does leave you with a better average value than with a lump sum of equal value invested in day one.
I hope that helps. Sorry it's long winded, but I think it's necessary. Let me know your thoughts and questions.