Stock markets have plummeted considerably since the Coronavirus outbreak. As it’s an uncertain time, you may be wondering how the pandemic will affect your pension and investments. Note that our guidance below relates to defined contribution pensions, and any element of risk will be borne by the employer that your pension is with. State pensions are unaffected by stock market behaviours and are provided by the government.
It is best not to make hasty decisions based on short-term current events when it comes to your pension. Decisions that are not well-considered may have long-term effects on your financial future and retirement plans. Before making any important decisions regarding your pension, it is worthwhile speaking to a financial advisor who can guide you on how to safeguard your pension savings for future. Financial Advisor UK offers a network of FCA-approved financial advisors who can offer guidance on Coronavirus-related financial issues.
Accessing your pension pot
Keep in mind that just as investment values go up and down, so can pensions, too. If you have many years ahead of you before you plan on accessing your pension fund (at least seven), then you may have sufficient time for your fund to recover from stock market fluctuations. If you are planning on retiring soon after the Coronavirus outbreak, then you may have to accept that your fund might not accrue as much as you had hoped. If you access your pension now, you may also miss out on any boost to its value that may happen as markets recover from the pandemic. Taking funds from your pension pot may also limit the amount you can put back into it in future. You should also consider tax implications. You’ll be able to take up to a quarter of your pension pot without paying tax. If you take more than this, you’ll need to pay taxes.
Always carefully consider other sources of income before you decide to start accessing your pension pot. If you start drawing your pension, this may affect other sources of income such as pension credit, universal credit, and other benefits. Don’t stop paying into your pension pot during challenging economic times. The more you can pay in, the more you will have when you retire.
Coronavirus and investments
If you are an investor and you have investments held in the stock market, (including your pension), then you might have seen the value of your pot decrease. It is very likely that many companies on the stock market will have struggled given the Coronavirus pandemic, and some have even left the FTSE 100 due to their share prices crashing. As an investor, it is important to remember that any return to pre-COVID levels on the stock market will take several years, and will not be fixed in just a few months.
Following the COVID-19 outbreak, markets are highly volatile and the situation is changing every day. It is therefore difficult to determine the type of impact this will have on investments in the long-term. On one occasion during lockdown, the FTSE 100 had a swing of 6.5% in terms of high and low points. As the number of Coronavirus cases continues to fall over time, investors are preparing for the long-haul and sitting tight with their investments. As economies recover, growth will be slow as social distancing measures are in still in place, putting pressure on demand and consumer behaviour. Increased unemployment could also change the way the economy looks for a number of years while countries get back on their feet. There is also the risk of a second wave of infection and the economic effect this will have. The best advice for investors is to sit tight and wait things out. If you are planning on retiring or accessing your pension that is linked to investment, speak to a financial advisor about losses you may incur, transferring your pension to another product, and whether holding off for a while longer would be a better option.
Generally speaking, as infection rates fall in certain countries, their markets are beginning to pick up slowly, which is an encouraging sign. That said, government borrowing is at an all-time high to try and kick-start the economy once again, so we are all in for a long period of slow growth. At the present time, you may feel anxious and worried about your pension investments fluctuating, but rest assured that markets will recover again, even if it takes some time. Try and decide whether retiring right now is the best thing to do, and consider the financial impact it might have on your savings.
Top tips for pension-holders
Always think long-term
It can be tough not to worry about short-term events and how they will affect your investments, but your pension is for your long-term future. Eventually, markets will recover to pre-COVID levels. If you invest long-term in the stock market, there is always opportunity for growth.
Keep calm
Don’t be tempted to make hasty decisions on the back of short-term events and rush to invest your money somewhere else in a lower-risk product. You might do this, and the value of your previous investment could go back up again due to market growth. If you’re unsure of what to do with your pension pot following a financial crisis, speak to a financial advisor.
Diversify your pension investments
The best way to minimise risk with your pension is to have various types of investments. A financial advisor can help you to invest in various products that expand the range of your portfolio. This way, if one investment is underperforming, the risk is countered by investments that are doing much better, and overall you should experience gradual growth without being too affected.
Hire a financial advisor
A financial advisor can talk through the various types of investment products and pension plans available to you, and advise you on the best products for your needs. They can also continually assess the investments you have on an ongoing basis to mitigate risk, and move things around when products are underperforming or no longer relevant to your financial goals. If you’re thinking of switching investments or transferring your pension, Financial Advisor UK can help you find the ideal advisor for your situation.