For most of us, pensions are invested with the hopes of delivering returns over the long term and they’re something we plan to pay into over our working lives. But the current pandemic may have impacted on your plans and the current value of your pension.
If you’re worried about the impact of coronavirus on your pension, you’re not alone. Research from Aegon found that many pension savers are anxious about their retirement savings. Perhaps unsurprisingly, older generations that will have more saved into a pension and may be nearer to retirement are the most concerned. The survey found:
This divide was also reflected in who was paying attention to market movements. Some 72% of the older group were doing so, compared to 44% of younger savers. This is despite younger generations being more likely to take this time to make one-off investments, which 28% have done compared to just 10% of those approaching retirement.
For all generations, there is a risk that rash decisions will have a long-term impact. For those still building up their pension savings, this could include halting contributions as worries about job and financial security becomes a concern. For those accessing their pension, failing to factor in market downturns if taking withdrawals could also have an impact on long-term value.
So, what can you do to keep your pension on track?
1. Maintain contributions
Given the current economic uncertainty, workers still paying into their pension may consider reducing or pausing their pension contributions. However, due to the effects of compounding even a relatively short break from making pension contributions can have a long-term impact. Keep in mind your own contributions will benefit from tax relief and, if you’re employed, there are contributions from your employer too. As a result, by halting your own contributions, you’re effectively giving up this ‘free money’.
If you find you can’t continue to make contributions, be sure that you understand the long-term impact and what it could mean for your retirement.
2. Don’t make rash financial decisions
With bold headlines and falling values, you may be tempted to make adjustments to your investments or make larger withdrawals from your pension to keep it ‘safe’. However, it’s important to keep in mind that a pension is a long-term investment that should be able to weather the impact of any short-term volatility. Keep this in mind if you’re thinking about making a knee-jerk reaction to the current market movements.
Making rash decisions is something the Association of British Insurers (ABI) has warned about. Yvonne Braun, Director of Policy, Long-Term Savings and Protection at ABI, said: “Rushed financial decisions are rarely the right ones, even at this worrying and uncertain time. Lockdown will not last forever but the decisions you make today about your pension could impact on your standard of living for years to come.
“Now, more than ever, it is important to think longer term, consider your options and seek advice and guidance before making any decisions.”
3. Review your portfolio
Whilst the media has focused on the fall stocks have experienced, for many pension savers, this isn’t all your portfolio is made up of. Your portfolio is likely to contain a mix of assets, which can help cushion the fall seen on global markets. You may have seen that the FTSE fell 30% due to coronavirus, but it’s unlikely the fall your pension has experienced is this high. In addition, markets have started to recover, they haven’t reached the levels they were at earlier in the year, but the fall isn’t as significant as it was.If you’re worried about reading headline figures, looking at your own portfolio is likely to show the impact of volatility isn’t as bad as you first imagined. It can help put worries into perspective.
4. Assess withdrawals if you’re accessing your pension
A dip in the value of pension investments isn’t usually something to worry about if retirement is some way off. If, however, your pension is in drawdown and you’re already making withdrawals, it’s worth assessing the impact these will have. As you’ll need to sell off more assets to receive the same income as you’d have done at the beginning of the year, this can deplete your retirement savings quicker. Where possible, temporarily stopping or reducing withdrawals can help your pension go further. Please contact us if you’re accessing your pension flexibly and want to discuss the rate of withdrawal.
5. Speak to your financial planner
As your financial planner, we’re here to offer you reassurance and advice when you need it. Speaking to us about pension concerns you may have can help you understand the long-term impact of the current situation and create a solution where one is needed. If you’re worried about your pension, or any other aspect of your finances, please get in touch.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
