How Will Covid-19 Affect My Pension?
If you’re in the 60+ age bracket at the moment, you might be worried about your pension. Not just the usual worries about if you have one and if it’s the right plan – but how the current pandemic could impact your pension fund. After all, most pensions are mainly made up of a collection of investments, and with the markets having fallen in recent months, investments are likely to remain volatile for a while. But how does this impact your pension planning, and should you be taking action?
If You’re Worried About the Value of Your Pension
It’s important to remember that pensions are long term investments, so while there might be a short-term impact as a result of Covid, that doesn’t mean the overall value of your pension will be reduced by the time you come to use it. If you still have several years before you’re planning to draw on your pension, then there are several years for the stock market to recover from the fluctuations happening now and in the immediate future. So while the value of your pension might be fluctuating right now, our advice is to try not to worry about it too much, and instead come back and re-evaluate once the pandemic is over and the world has settled into a new normal. At that point we will have more information, and a better idea of what the stock market is doing, so you can be sure any changes will actually be beneficial in the long term, not just the short term.
If You’re Over 55 and Considering Accessing Your Pension
This is the group with the most concern right now – those who are either considering accessing their pension and retiring, or who are already living on their pension now. Depending on when you’re planning to retire or withdraw money from your pension fund, you might have to consider taking a lower income than planned.
If you decide to try and access your pension savings now and take a big chunk out, then you might miss out on any increase in value if the markets do recover. There’s also the tax implications of that to consider. You can normally take up to 25% of your pension pot tax free, but if you want to take more than 25% then there are tax implications. So withdrawing more than 25% of your pension fund might seem like a safe bet, but it might end up costing you more in tax, and limit how much you can pay into a pension in the future as well.
It’s also important for you to consider all of your sources of income before you make any decisions about your pension pot. After all, if you take money from your pension now, it could have an impact on your eligibility for any income-related benefits, like universal credit or pension credit, which could have a knock-on effect on the amount of money you have to live on.
Scams
Of course, there are always bad people out there wanting to take advantage of scared, vulnerable people. So it’s no surprise that there have been a number of new pension scams popping up. Pensions scams can take many forms, and often appear to be a legitimate investment opportunity, or offer you the chance to cash in your pension before the age of 55 (which just isn’t possible). The virus has been like a payday for many scammers who want to liberate your pension fund from you. In fact, Action Fraud reported a 400% rise in coronavirus-related fraud in March, with many of the usual methods of pensions fraud still being used. The difference is that while their methods (cold-calling targets) are unchanged, potential victims are less on their guard as they adjust to all interactions being done by telephone. So right now its more important than ever to be on your guard, and don’t do anything with your pension without speaking to your own financial adviser first.
The most important thing is to not panic and make rushed decisions about your future just because things look bad right now. The pandemic will pass and the markets will recover, if given enough time. But the decisions you make could have a huge impact on your ability to live comfortably later in life. While we don’t have the ability to predict the future, the team at Chilvester Financial are here to help guide you through the ups and downs of the current pension landscape, and help you create a pensions strategy that is right for you, and will provide for you in the months and years to come. If you would like to find out more, just get in touch with the team today, and we would be happy to help.