Wealth management

Coronavirus: pension planning during the pandemic

Since the Coronavirus outbreak, stock markets globally have fallen considerably and there is pressure on all financial markets around the world. How is the pandemic affecting the health of your pension and is there anything you should be considering currently?

What should I do about my pension if I see the market dropping?

Even though these are unprecedented times, as an investor, it’s useful to put any short-term volatility into historical context, to get the bigger picture, rather than focusing too intently on short-term events and market fluctuations.

Market analysts and investors aren’t infallible, but when something like coronavirus strikes, they become nervous. This is because flight bans, lockdowns and closed borders can pose a threat to companies of any size. So, it’s little wonder that stock markets have fallen and you are likely to have seen a drop in value of your pension pot over recent weeks.

However, it’s worth remembering that the recent falls have come after some very strong rises in recent years. Also your pension pot is unlikely to be invested solely in equities, so a 5% fall in the market does not necessarily equate to a 5% fall in the total value of your pension fund. In fact, the typical pension pot will contain a broad range of assets, which have been identified to fit in line with your attitude to risk, personal objectives and time frames. A typical pension fund contains around 60%-65% in shares, with the rest in government and corporate bonds, property and cash. In contrast to equities, government bonds have actually increased in value during the crisis.

If you need help with your pension, talk to us today

Will my pension pot ever recover? 

Investment requires a disciplined approach and a degree of holding your nerve if markets fall. Experienced long-term investors know that the worst investment strategy you can adopt, is to jump in and out of the stock market, to panic when prices fall and to sell investments at the bottom of the market. 

The importance of keeping to your long-term plan is evident by studying the performance of the FTSE 100 over the last 20 years or so. Back in the autumn of 1998, the FTSE 100 fell by 1,000 points, amidst an environment of high interest rates and other threats to UK economic growth. However, it had almost fully recovered by the end of 1998 and the index soared close to 7,000 in 1999. A global slowdown brought it back down to around 3,600 in spring 2003, before taking another five years to climb back to around 6,500. Then, the global financial crisis happened and the index was back at 3,500 in March 2009. After a long haul back, the index was at over 7,000 in January 2020 before the pandemic affected global markets. 

Over the last 20 years, despite a variety of market shocks and rebounds, the index still has a long-term growth trend. It's important to remember that some market volatility is inevitable. Markets will always move up and down, but it's important to stick to your long-term plan.

Is now a good time to top-up my pension?

If you have been furloughed during the Coronavirus crisis, the Government has confirmed it will also pay employer’s auto enrolment contributions, at the minimum rate of 3%. So, your employer will receive a grant from HM Revenue and Customs to cover the lower of 80% of your wage or £2,500 per month, plus the associated employer pension contribution on that subsidised wage. If your employer pays more than the minimum 3%, it’s important to note that the Government will not make up this up. 

Providing you are investing for the long term, you may wish to consider investing more into your pension pot. Even a small increase in contributions could make a difference to your final pension pot, if it benefits from an upturn in the market and makes up for recent losses.  

Remember that whatever type of pension plan you hold, you get tax relief at the highest rate of Income Tax you pay, on all contributions you make, subject to annual and lifetime allowances. This effectively means that some of your earnings which would have gone to the Government as tax are diverted to boost your pension pot instead.

You receive ‘relief at source’ if you pay money into your personal pension yourself or if your workplace pension contributions are taken directly from your pay packet. In both circumstances, you automatically receive 20% tax back from the Government in the form of an additional deposit into your pension pot. So, for instance, if you’re a basic-rate taxpayer investing £800 of your take-home pay into your pension, the tax relief would amount to £200. Effectively the taxman tops up your £800 contribution to £1,000. 

How do I make sure my pension is protected?

As well as taking a long-term view of your pension, regular reviews are essential to ensure you remain on track with your well-defined plan, in accordance with your objectives and attitude to risk. If there have been any changes in your objectives or circumstances, it is particularly important to review and make any adjustments where needed. 

When investing, you have to decide how much risk is right for you. Successfully achieving your long-term goals requires a balance between risk and reward, so you can construct a diversified portfolio with the potential to improve returns that matches your elected level of risk. While a diversified portfolio should incorporate strategies to help reduce risk, it cannot be eliminated altogether. The process of building such a portfolio is very difficult to achieve without professional advice. 

Can I get advice about my pension?

In these uncertain times, more than ever, it’s important to take professional independent financial advice, from someone who will help you to make the right financial decisions and identify and meet your goals and aspirationsResearch shows that those who take advice are likely to accumulate more wealth, supported by increased saving and investments in equities. Also, those in retirement are likely to have more income, particularly at older ages.

We’re here to help 

Planning is a continual process of anticipating and adapting to changes in your personal circumstances over the long term. When you work with us you benefit from informed, professional advice, reinforced by up-to-date market intelligence and years of experience. Tees Financial Ltd is the independent financial advice and wealth management arm of Tees.  It has been awarded the Pension Transfer Gold Standard as well as Corporate Chartered Financial Planner status.

Important Information:  The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Tees Financial Ltd (‘Tees’) communications or strategies.

This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future returns. The value of an investment and the income from it, can go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. All investments involve risks including the risk of possible loss of capital. Information herein is believed to be reliable but Tees does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Tees has to our clients under the FCA regulations. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee that any forecasts or opinions will be realised. These views and opinions may change. This content is intended for UK clients only, and should not be distributed outside the United Kingdom. 

Tees is a trading name of Tees Financial Limited which is regulated and authorised by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Tees coronavirus update

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