14/04/20What does coronavirus mean for my pension and retirement?
As the coronavirus pandemic continues to dominate world headlines, here is what it might mean for your pension and retirement plans.
The pandemic has created uncertainty in economies around the globe. As a result, stock markets have experienced shocks and over the last few weeks have seen significant falls. Fears of a recession following the pandemic have sparked even more concern. It is natural to be worried about what the impact on financial markets means for your future. Understanding what the change means, and where adjustments may need to be made, can help you plan for retirement with confidence.
What impact has coronavirus had on pensions?
For most people, pensions will be invested. This gives your pension an opportunity to grow over the several decades you are likely to be paying into a pension. However, it does mean your retirement savings are exposed to market volatility. In the last few weeks, this will mean pension values are likely to have fallen.
The full impact will depend on where your pension is invested. It is important to keep in mind that a pension does not just hold stocks and shares, other assets are used to create balanced portfolios. So, whilst news updates may say the stock market has fallen 20%, it is unlikely your pension will have suffered a fall on the same scale.
If you are worried about your pension, it is worth checking the value. However, keep in mind that short-term volatility is to be expected at the best of times. Keep the bigger picture in mind and look at the value of your pension with your retirement plans in mind.
The impact coronavirus will have on retirement plans will depend on what stage you are at.
1. Your retirement is still several years away
If retirement is still some way off, the current market activity should not affect your retirement plans.
You should always invest with a long-term goal in mind, this provides an opportunity for peaks and troughs to smooth out to deliver gradual investment gains when you look at the bigger picture. Whilst past performance is not a reliable indicator of the future, previous market corrections and crashes have always been followed by a period of recovery.
So, whilst it is natural to worry if your pension value has fallen, stick with your long-term plan.
2. You hope to retire soon
If retirement is nearing, it is natural to worry about your pension in any circumstances. It is a life milestone that means we often have to change the way we view income and finances. As a result, a stock market crash just before the date can be worrisome.
The first thing to do here is to put the stock market falls into perspective. You have likely been saving into a pension for many decades. No one likes investment values to fall, but when you look at it in comparison to the gains made, you have probably done well financially.
You also need to look at your pension value in the context of your retirement plans: Will the current value of your pension provide you with the income needed throughout retirement? If not, what is the shortfall?
This can be difficult to weigh up, as there are numerous factors to take into consideration. Working with a financial planner can help you understand how the pension figure translates to a retirement lifestyle. If there is a shortfall, there are often steps you can take to bridge the gap, from delaying retirement to using other assets.
It is also worth noting that, depending on your goals and desired retirement lifestyle, your adviser may have ‘lifestyled’ your pension already. This is where your savings are switched to a lower risk profile that aims to preserve the savings you already have as you near retirement. If this is the case, it is likely the impact on your pension is lower as you will be less exposed.
3. You are already retired
If you are already retired and choose to access your pension flexibly using Flexi-Access Drawdown, the current activity may have an impact. This is because your pension savings remain invested with the goal of delivering returns whilst you are retired. However, the flip side of this is that you are exposed to market volatility.
The important thing to recognise here is how your withdrawals will have an impact in the long term. Making withdrawals whilst the market is low means you must sell more units to secure the same income. This can deplete your retirement savings quicker than expected. As a result, it is worth reviewing how much you are withdrawing.
If you are able to reduce withdrawals or temporarily pause them, this can help to minimise the impact on your pension savings in the long term. You may have other assets, such as cash savings, that can be used to tide you over until the markets begin to recover. If you find yourself in this situation, please contact us. There are often solutions that will enable you to maintain your lifestyle and future.
Having confidence in your retirement aspirations
Whether you are already retired or you are still working towards that goal, it is important to have confidence in your plans. This includes understanding the lifestyle your pension will provide and how market shocks would have an impact over the short and long term. This is where financial planning can help. If the recent volatility means you have concerns about pension investments, we are here to help you. In some cases, it may simply be understanding how pensions will grow over the next ten years, in others, adjustments may be necessary, such as reassessing your risk profile or increasing contributions. Please contact us to discuss your pension and retirement goals.
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.