How can I re-arrange my pension fund post-Covid?
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I’m meant to be retiring in a couple of years when I hit my 66th birthday. I’ve just had a statement from my pension company and my fund has lost value this year – presumably because of the coronavirus situation – and it looks like I won’t be able to afford to do so. This has thrown my planning completely off course and I’m worried that my fund won’t be back on track by the time I want to finish work. What should I do?
Douglas Bridges of Smith & Pinching responds:
Please don’t panic. There are two important points to make here. Firstly, although your pension fund has suffered a loss in value over the past year, we have already seen a substantial recovery from the low point the markets reached in April last year.
In fact, our own S&P managed portfolios have actually seen a small increase in value over 2020. There is every reason to be optimistic that full recovery and subsequent growth may happen over the next couple of years – although that, of course, cannot be guaranteed.
Secondly, when you retire, you have a number of different options. You could, for example, use any other savings you may have to delay taking your pension until markets improve. In addition, you have choices in the way that you can generate income from your pension fund.
With Flexi-Access Drawdown, your pension savings are moved to a plan where you can take withdrawals from your pension savings as and when you need them, so the remaining fund is invested until needed and has the potential to increase in value if markets rise, though a rise can’t be guaranteed (and of course the fund value may in fact decrease, as you have seen recently). It’s also possible to take direct withdrawals from your pension savings without entering into a flexible drawdown arrangement.
The alternative to direct withdrawals is an annuity – a guaranteed income for life. This would require a one-off payment at the outset, so low market values would have a more significant impact on what income you might achieve.
I cannot stress enough that planning is hugely important as you approach retirement: please get independent financial advice at this critical time. It may be appropriate to move some of your pension investments to lower risk funds to make them less vulnerable at this stage.
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Financial planners use specialist cashflow modelling tools to help you understand how changing market conditions will affect your plans and to explore the suitability of the different options available to you.
Any opinions expressed in this article do not constitute advice. The value of your investment can go down as well as up and you may get back less than the amount invested.
For more information visit www.smith-pinching.co.uk