Remember that Pension savings are for the long-term.
Coronavirus is having a massive impact across all aspects of financial life, including retirement plans. The current global stock market is turbulent, and as a consequence will be concerning for many individuals whose savings are invested during these volatile market conditions.
However, making important decisions based on what’s happening in the short-term can be a risky thing to do. It can be tempting for example to move your investment into cash or other lower-risk investments for a while, and in doing so, you could miss out on the point when the value goes back up, so you may lose out in the long-term.
Time for markets to recover
It’s essential to remember that Pension savings are a long term investment. If you’re young and currently paying into a workplace pension, then there’s time for your pension pot to achieve growth over the long period of time and recover from the volatility currently being experienced on the stock markets. You shouldn’t concern yourself too much as you have plenty of years ahead of you, which will provide time for the markets to recover before you take your pension income.
If you’re closer to the age when you’re scheduled to take your Pension benefits, you may have seen your funds “lifestyle”. This means your Pension will have been moved into predominantly less risky funds and places like cash, gilts and bonds which usually offer a fixed rate of return. The older you get – the more schemes tend to invest in such assets to minimise investment risk, note, not all Pension schemes offer automatic lifestyling.
An annuity product is a type of retirement income that you can buy with some or all of your Pension pot. It pays a regular income for a set period or life.
If you’re about to take your Pension benefits and you were planning on buying an annuity product, note that in March the Bank of England cut the base rate twice reducing it to just 0.1%. This meant that Annuity rates have also fallen.
This recent volatility shows the importance of gradually reducing the risk in your portfolio as you approach your expected purchase date as this provides greater certainty over the secured income you can expect to generate from your fund.
Drawdown is one way of taking money out of your Pension fund to live on during partial or full retirement via a defined contribution (aka Money purchase) scheme.
You can only access your money in this manner if you are aged 55 or over and to keep your money invested when you wish to draw down an income. The investments – that are typically still in the stock market may fall in value, but the upside is that investment growth can provide higher returns and see your pot continue to increase in value.
If we continue to see a period of negative investment returns, and you’re already in Drawdown or planning to be in Drawdown, you might want to avoid taking out any more than you need, as the more you can leave invested, the more you will benefit over time once there is a recovery.
If you are still saving for your retirement, now might be a good time to increase your Pension contributions if you can as, over the long-term, this can make a difference to your future pot value at retirement if it coincides with the market recovery.
Again, there is no need to panic. Nobody knows what the long-term implications of Coronavirus will be, but I can help you see the bigger picture, weigh-up all your options and take a knowledgeable, balanced assessment of your risks.
New research* has revealed that many Pensioners are opting for a staggered retirement and continuing to work part-time before giving up work entirely, to make sure their pensions last for the rest of their lives.
While people are living longer, and the added prospect of Care costs in later life, retirees increasingly understand the benefits of having a larger pensions pot. Of those who hadn’t already accessed their pension pot, 51% say it is because they are still working while 25% of people in their 60’s say it’s because they want their Pensions to last as long as possible.
Wherever you are on your Pension or investments journey, before making any big decisions, get professional, independent financial advice.
Ray Tammam – APFS
Chartered Financial Planner
Twitter – @raytheifa
* Source data from LV= from a survey of more than 1000 adults over 50 with defined contributions schemes. 25/2/2020
A Pension’s fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Pensions are generally not accessible until age 55, and your pension income could also be affected by interest rates at the time you take your benefits.
The tax implications of taking withdrawals will be based on your individual circumstances, tax, legislation and regulation, which are all subject to change in the future.
Ray Tammam is an award-winning Independent Financial Adviser and Chartered Financial Planner based in Manchester, with over twenty years’ experience and specialises in Pension and Investment advice.
He has appeared on multiple occasions as a financial expert on television and radio and regularly contributes to national press articles (most recently in the Telegraph).
Ray is happy to take queries from you about your financial arrangements at firstname.lastname@example.org
Fun fact – you may recognise Ray’s name as his 12-year-old achieved worldwide attention by singing on stage with Adele at the Manchester Arena during her last tour.
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