Be patient and consider retirement strategies – Even before most of us had heard of Coronavirus, only 25% of Brits felt confident that they would have enough to retire on without needing to supplement their pension. The impact of the Coronavirus pandemic on the global stock markets has resulted in the average pension fund value falling by 15.2% during this period.
Those of us who have been diligently saving for retirement will be looking to understand the effect Covid-19 will have on our futures, as this recent down-turn in market performance causes a surge in anxiety around future income.
Stay in employment if possible
After several years of strong performance, the 20% reduction in the UK economy has led to falling fund values and low annuity rates. So how has this affected retirees’ income? The closer you are to retirement, the greater the effect Covid is likely to be having on your finances. For those who have not yet retired fully, it may be worth staying in the workforce to give invested assets time to recover, and benefit from the support the Government is providing.
More than a quarter of the UK workforce is now being supported by the Government’s furlough scheme, which covered 9.3 million workers at the start of June. We will have to see what happens when the furlough scheme ends in October, which currently pays 80% of an employee’s wages if they are temporarily unable to work.
Monitor your pension pot
In the UK many of us hope that the effects of the Coronavirus will be short-lived as lockdown ends and we return to ‘business-as-usual’. But not all of us will have been affected equally. Our pension funds will be affected depending on where they are invested and the combination of different assets.
The more complex your planned income streams, the more difficult it can be to get a ‘clear picture’ of your financial situation. For example, depending on your level of exposure to the stock market its possible you’ll have seen a fall in the value of your pot. For those whose funds are invested in property – the coronavirus pandemic has also seen 18 major UK property fund suspensions take place so far, with a total of £22.4bn trapped in various funds.
You will be able to find out how your funds have been affected through updates on your fund provider’s website. Our clients are also able to benefit from our online portal, which allows them to view their plans and valuations.
Some may be able to benefit from the opportunities created by volatility. Those that can afford it could consider increasing their pension contributions, benefiting from pound-cost averaging, and tax relief on their contributions.
Understand your investments
A pension is a type of investment designed to provide an income in retirement. Your funds are invested to have the possibility of growth, but there will also be volatility and the possibility for loss. It is crucial for anyone saving into a pension pot to understand the risks involved and its purpose within their pensions.
Some investors will be uncomfortable with any loses. This is why the concept of ‘appetite for risk’ is important. Investors will need to be able to weather any downturns in performance and accept losses when they occur. This is a concept which financial advisers will discuss with their clients, and ensure that clients are ‘matched’ to suitable investments.
Some investors may be considering their capital from any funds, anxious to ‘cash out’ and crystallise their losses. But remember that this would mean that these funds no longer have the possibility of growth, and that you may miss out on the better performance in future.
Seek expert advice
While pension freedoms give savers more control over their retirement income, that doesn’t mean that they have to shoulder the responsibility alone. It can be hard to remove emotion when you’re dealing with money, and what you hope to achieve. An independent financial adviser can help their clients to stay focused on the long term and support them on their financial journey.
The value of an investment and income from it can go down as well as up, capital is at risk.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.