4 tips to keep your pension on track during the pandemic

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 damage of coronavirus on your pension, you’re not alone. Research carried out by Aegon found that a lot of 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:

  • 33% of 18 to 34-year-olds checked on the performance of their investments in March, amid significant market volatility;
  • This is in comparison to to 53% of pension savers aged between 55 and 64.

This divide was also shown in who was paying attention to market movements. 72% of the older group were doing so, in comparison to 44% of younger savers. This is despite younger people 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 certainly a risk that rash decisions will have a long-term impact. For those who are still building up their pension savings, this can include halting contributions as worries about job and financial security become a concern. For those who are accessing their pension, failing to factor in market downturns if taking withdrawals could also have an impact on long-term value.

So, here’s our tips on keeping your pension on track:

  1. Maintain contributions

Given the current financial uncertainty, workers who still pay into their pension may consider reducing the amount or pausing their pension contributions. However, due to the effects of compounding, even a short break from paying in pension contributions can have a long-term financial 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 stopping your 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.

  1. 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 snap decisions is something the ABI (Association of British Insurers) has warned about. Yvonne Braun – Director of Policy, Long Term Savings & Protection at ABI, says: “Rash financial decisions are seldom the right ones, even in this worrying and uncertain time. Lockdown won’t last forever, but the decisions you make now about your pension can impact on your standard of living for years to come.

“Now, more so than ever, it is important to think long term. Consider your options and seek professional financial advice and guidance before making any decisions.”

  1. Review your portfolio

Whilst the media has mainly focussed on the fall that stocks have experienced, for many pension savers, this isn’t necessarily all your portfolio is made up of. Your portfolio is likely to contain a various mix of assets, which is intended to help cushion the fall seen on global markets. You might have seen that the FTSE fell 30% because of coronavirus, but it’s unlikely the fall your pension has experienced is this high. In addition to this, markets have already started to recover. They haven’t reached the levels they were at earlier in the year just yet, but the fall isn’t as high as it was.

If you are 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.

  1. Assess withdrawals if you’re accessing your pension

A drop in the value of pension investments isn’t usually something to be overly worried about, if retirement is some way off. However, if your pension is in drawdown and you are already making withdrawals, it’s definitely 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 halting or reducing withdrawals can help your pension stretch further. Please ensure you speak to a professional pension adviser if you’re accessing your pension flexibly and want to discuss the rate of withdrawal.

The financial advisers at Clarity Wealth offer expert pension advice, contact them today to see how they can help you

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