Undoubtedly, those of you who have them will be worried about your pension funds during these unprecedented times. A recent survey conducted by Aegon found that 63% of those aged 55-64 reported feeling high levels of anxiety about their pension investments. Whether you have been furloughed or you have accepted or decided to take a pay reduction due to the present situation, you may well be tempted to dip into your pension pot to see you through these tough times. In even more extreme situations, you may have been made redundant and are now thinking about retiring.
With the global markets sell off the value of your pension or the company servicing it will be affected. If you are in your 40s you need to worry less, as pensions are a long-term investment and you can ‘ride’ out the current volatility. You can even benefit from this opportunity by making more contributions at this time. If you are nearing retirement you may want to consider your options and start planning now.
What are the options?
When you are considering your options at retirement, you really should seek our independent advice to help guide you through the minefield of options. For instance, if you need to access your pension, one option to consider is drawdown (phased or full). This option carries risks which you need to fully understand, so taking advice is imperative. The big attraction with pensions is that you can access 25% of your pension tax free from the age of 55, leaving 75% of your pension to generate an income. However, taking income can have a big impact on your ability to further add to your pension.
One way to mitigate this is by taking out an uncrystallised fund pension lump sum or UFPLS, (forgive the jargon). This will allow you to dip into your pension whilst you carry on working and to rebuild your pension over time by continuing to make pension contributions. By using UFPLS you won’t trigger the big restriction on your standard annual allowance which reduces it from £40,000 down to only £4,000.
Stick it out
Where possible, try not to opt out of your workplace pension to reduce your costs. As already mentioned, if you can keep contributing now, then you will be in a stronger position come retirement. Under the Association of British Insurers (ABI) guidelines, a man aged 55 can expect to live, on average, for a further 24 years, while a woman at the same age can expect to live, on average, for a further 27 years. This is a long time to be living off your pension and savings, so it is vital that you have your investments reviewed regularly to ensure you are invested correctly and remain on course. The last thing anyone wants is to run out of income in their retirement, and the current market conditions do lead to compound reduction in values where income is being taken.
If you are already in a pension income drawdown, you should consider stopping your income – under lockdown most individuals and family households will be spending less money, so as much as it sounds painful in the short term, it will pay dividends in the long term. The funds are best left invested and not withdrawn while the holdings are at depressed levels. Now is the time to minimise the losses by staying invested and not withdrawing funds (lump sums or income).
Finally, in these tumultuous times, as if we don’t have enough bad news to contend with, the latest report from Action Fraud documents a 400% increase in scams relating to the Coronavirus in March 2020 alone. Please do not respond to unsolicited phone calls, texts or online offers of pension reviews. If you are in doubt, please contact us and we will be able to discuss anything at all with you. You should never be rushed or pressured into making any decision about your pension. We have pension specialists here at Evolution to help you make the right decisions.