vallierojas: The stock market crash and you

The debt crisis has sent stock markets into turmoil ? painful news for pension savers and investors, but the silver lining is falling mortgage rates

Panic is sweeping through stock exchanges across the world, with the FTSE 100, the Dow Jones and the Asian markets all taking a pounding. Here we look at what it all means to you, and what you can do about it.

Pensions

The closure of final salary-based pensions and the shift to ones dependent on the stockmarket means this week's falls are more painful than ever for millions of workers. The FTSE 100 has fallen by a tenth in the space of just four weeks, and at the time of writing is tumbling further.

Worst hit are those approaching retirement: they won't be able to make up the losses. What's more, the turmoil in markets has sent annuity rates to rock-bottom lows. Annuity rates determine how much pension income you get in return for the money you saved during your lifetime, so this means pensioners retiring today will see a lower income.

Action More of the same: save more, work longer, retire later. Younger workers can ride the storm if markets recover. Older workers may feel compelled to shovel yet more cash into their workplace additional voluntary contribution (AVC) schemes. Someone retiring this week should speak to an independent annuity adviser urgently.

Savings

Last time around, when Northern Rock and then the Icelandic banks crashed, there was real panic about the security of savings. This time around the banks at the centre of the storm ? Italian ones such as Unicredit and Intesa ? are virtually invisible on the UK high street. If Spain moves centre stage then expect a rumble of concern about Santander, although it has passed stringent EU tests on its capital strength.

Action The UK compensation scheme has been improved since the last crisis, and now guarantees the first �85,000 of any individual's savings (so a husband and wife or civil partner can protect as much as �170,000). The standard advice, if you have more than that amount, is to spread it around different accounts at providers which are not in the same banking group.

Mortgages

Here's the silver lining. While the Italians and Spanish have seen money market interest rates shoot beyond 6%, the reverse is happening in the UK. Short-term money has, oddly enough, become cheaper, as markets now think the Bank of England won't raise interest rates until well into 2012. In the past few days banks and building societies have been rushing out rate cuts on nearly all their deals, so if you're coming off an expensive fixed-rate mortgage you're one of the lucky ones.

The rate on a five-year fix has tumbled from about 4.5% to a record low of around 3.7% (see, for example, Yorkshire building society's deal and others at moneyfacts.co.uk); two-year fixes have dropped below 2.7%; while tracker deals start at 2.89% at First Direct.

But the new banking crisis is probably bad news for first-time buyers, effectively shut out of the market by demands for huge deposits. This is unlikely to ease any time soon as banks do everything they can to preserve their capital.

Action If you're on an existing tracker deal (which follows the Bank of England base rate) then you're probably wise to do nothing and enjoy the ride. If you have a large mortgage, cannot afford a rate rise and think inflation is going to return, then jump into one of the five-year fixes.

Petrol, gas and electricity

Good news. The oil price has come back from a peak of about $125 a barrel during spring to about $108, with most of that fall in the past few days. This morning it was up a bit, but if the world economy slows down or even goes into a double-dip recession expect further falls.

Bad news. E.ON this morning raised its prices by 18.1% for gas and 11.4% for electricity. However, if the wholesale price of gas and electricity tracks the price of oil, as it tends to do, maybe households will see an easing off in further price rises. But the utility companies have a long history of failing to pass on price falls in the wholesale market, so don't expect price cuts in the short term.

Action It's probably not worth switching gas or electricity provider right now ? hang around for better deals in a month or two's time.

Investments

Bad luck if your fund took a bet on European banks recovering. Ones that can play markets going down (the hedge funds and Ucits III funds) may in some cases have benefited. This morning, financial advisers were telling clients that the important thing is diversification, although one of the features of the 2008-09 market decline is that all asset classes ? equities, bonds, property ? went down, so diversification didn't pay off much.

The big play of the past few years ? mining and commodity stocks fuelled by voracious demand from China and other emerging markets ? will look exposed if global growth slows.

But gold continues to shine. Yesterday it went up another $10 to $1,679 an ounce, and while markets remain in panic, is likely to advance further.

Action If I knew the answer to this one ?