COVID-19 and the value of pensions
This is a concerning time for a variety of reasons, from concern about the health of yourself and your family to job security. This blog aims to provide helpful information for members’ concerns about their pension.
Members of defined contribution pensions who’ve checked the value of their pension in recent days, are likely to have noticed quite a big drop in the value of their pension, which can be shocking and concerning.
It’s important to remember, though, that pensions are a long-term investment, and the value of your pension pot at retirement is more important than the value while you are saving.
Will the value of my pension pot recover?
We would expect for the unit values of the pension funds (which are the underlying investment for defined contribution pensions) to recover in the long run. This is what happened following the financial crash of 2007 to 2009. How long it takes for the markets to rebound will impact how long the drop in values from COVID-19 will affect our members’ pensions.
Reducing pension contributions during the coronavirus pandemic
The recent fall in the value of pension funds means that the contributions you make during this period will purchase more units in the fund. This means that, relatively speaking, you will be buying the units at a cheaper price. So the units you purchase over this period are likely to have a relatively larger increase in value.
Many people are currently reducing contributions temporarily due to impact of coronavirus on their own or partner’s income. But the likelihood of the increase in value could make up for you reducing your contributions.
People who’ve taken the difficult decision to stop or reduce pension contributions, should look to review their pension contributions again once normality has resumed.
What if you’re looking to retire, or considering drawing pension?
For members who were either planning to retire this year, or are considering drawing pension due to impacts of coronavirus on their income, the volatility is much more concerning.
However, we would hope that for members in default funds, ‘lifestyling’ and a diversified investment strategy should be working to limit the effect of market volatility.
‘Lifestyling’
Where can I go for advice?
We’ve got FAQs for members on claiming pension benefits. We recommend members seeking detailed explanation of the options for drawing a defined contribution pension to go Pension Wise and the Pension Advisory Service.
Members who decide to draw money from a defined contribution pension and return to work and save for retirement need to be aware of the money purchase annual allowance (MPAA). We’ve got helpful information for members on the MPAA in our Pensions Tax Relief briefing.