Whether you’re already retired, close to retirement or still building your retirement fund, you might be concerned about the impact of the current stock market downturn on your pension. Exactly what it means for you will vary depending on many factors, from the funds in which you are invested to the time until your retirement date.
So how, if at all, will coronavirus affect your pension?
Coronavirus and your pension
Your pension will likely be invested and that means that it will rise and fall broadly in line with the wider market. The current coronavirus outbreak has led to a fall in stock market prices and that means that the value of your pension will likely have fallen too.
It’s worth noting that a pension doesn’t just hold stocks and shares. It uses other asset classes to ensure you have a balanced and diversified portfolio, mitigating the impact of a large fall in one area.
This means that a drop in the markets of 20%, for example, is unlikely to equate to a 20% drop in your pension value. The best way to check on your pension is to speak to your provider and request a valuation.
Remember that pensions are long-term investments. If you are still some way from retirement, we would advise that you remain calm and avoid making emotional, knee-jerk decisions. Speak to us if you’re worried about your pension savings or the impact of coronavirus on your long-term plans.
The impact of market volatility will be different for everyone.
What if I’m already retired?
If you’ve already retired and accessed your full pension fund – either by purchasing a regular annuity or taking a full lump sum – market volatility will have no impact on your pension fund.
If you still have an element of your pot invested – if you’ve opted for Flexi-Access drawdown for example – a drop in the stock market may impact the portion of your fund that remains invested. Conversely, a future rise in stock market values will also be reflected in your pension pot.
If you are taking regular withdrawals from your pension, you might consider reviewing the amount you’re taking. Making withdrawals when market values are low means selling more units to secure the same income, potentially eating into your savings quicker than anticipated.
Your pension pot needs to last you for the rest of your life. With life expectancies increasing that could mean collecting a pension for 25 years or more. It’s important you keep on top of the amount remaining each time a withdrawal is made.
What if I want to retire soon?
If your retirement date is approaching, stock market volatility can be a concern.
Pensions will often be de-risked, or ‘lifestyled’, as you near retirement. This involves moving your investments from riskier asset classes to lower risk ones in default funds in order to consolidate the gains you have made over the previous decades.
This protects you against sharp falls in value close to retirement, at the exact time you need the money most. If you’re nearing retirement you may well be invested in these default funds already.
Speak to your provider and request a current valuation, as well as finding out what funds you are invested in.
Your investment might already have been lifestyled but it’s worth remembering that if you intend to continue working in retirement, or want to take income drawdown and leave an element of your pension pot invested, you could be missing out on large potential growth in the future.
You will no doubt have a financial plan in place for retirement. Is the current value of your fund sufficient to make your plan a reality?
If you have a shortfall, there are a number of ways that this might be made up. Speak to us for advice if you think you might have a pensions shortfall.
What if my retirement is still several years away?
Investment is a long-term strategy and if your retirement is still some time away, current volatility is unlikely to impact your plans.
Long-term investing is designed to weather the storm of short-term market dips and evidence suggests that the markets will recover and return to a generally upward trend.
It’s important to remain calm, have faith in your long-term plan, and avoid making emotional, knee-jerk decisions that could impact your time in the market, and potential returns when the market recovers.
If you’d like to discuss the impact of coronavirus on your pension, get in touch. Please email firstname.lastname@example.org or call 0115 933 8433.
A pension is a long-term investment not normally accessible until age 55. 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.