Looking after your pension pot post-Brexit
Less than a week in, and the fallout from Brexit has been immense. The prime minister has already been a casualty, and the political and economic upheaval appears to have only just begun. The markets and the pound predictably responded negatively on Friday; albeit that they have shown some signs of recovery since. It remains early days though, and ours isn’t the forum upon which to speculate about what lies ahead.
Nevertheless, the ramifications of Brexit have already bared their teeth, and what’s certain is that many months and years of uncertainty lie ahead. Among many in the firing line are those with pensions and retirement plans. Understandably, for those approaching their golden years, the current volatility can be most unsettling, especially if your portfolio is heavily linked to the stock market.
The good news, however, is that there are ways to mitigate things, and ensure your retirement plans don’t take too much of a knock as a result of Brexit.
As you were
The first thing to note is that, while it may feel tempting, the worst thing we as individuals can do right now is to hit the panic button. Recessions, along with runs on currency, cash and stocks can often be self-fulfilling, so it is incumbent upon all of us to simply keep calm and carry on. Bear in mind too that fluctuations in investments are part of the deal, and a well-diversified portfolio will likely ‘right’ itself over time. So stand your ground, and don’t indulge in a panic-stricken fire sale.
Keep saving and contributing
Especially for savers who are still years away from retirement, we must emphasise the importance of allowing time for savings and shares to recover. In fact, falling share prices could even present an opportunity to buy cheap – albeit there is the ‘catch a falling knife’ caveat, and the need to view such decisions as a long-term investment.
Either way, it’s vitally important to continue paying into existing pensions – not least of all to continue benefiting from the tax efficiency on offer, and the contribution of your employer if it is a workplace pension. If you continue to pay into your workplace pension, you may also be able to benefit from any drops in company share prices too.
It is contingent upon age, and how close you are to retirement will affect your approach. But for those with time on their side, this is a storm to simply ride out. The yo-yoing of the FTSE 100 over the last few days shows the unpredictability of movements – but unpredictability doesn’t necessarily equal doom and gloom, so stick to your guns and keep yourself in it for the long haul.
The wretched annuity
If you’re within five years of retiring, and your pension is heavily linked to the stock market, you won’t have as much time to recover from any nosedives. Consider moving a chunk of your savings into less-riskier assets like bonds, or even cash if you are very risk averse. Most workplace pension schemes adjust portfolio risk as you get older anyway, so this should offer some protection.
Some might be tempted to play it safe and opt for heavier investment into annuities. While this does offer a guaranteed income for life, it must be cautioned that rates have tumbled even further since the referendum result, with numerous leading providers slashing rates by 3 per cent and predicting further declines on the way. This is because annuities are closely linked with the performance of Government bonds, which have been hit particularly hard by the turmoil in the market.
Sense and sensibility
Ultimately the best weapon of all is to spread your risk over a wide range of investments from different asset classes. This could mean widening the net to incorporate things like Global Equity Funds, European Equity Funds, Income Funds, Bond Funds and many others. Of course, we also firmly believe it opens the door ever further to less-volatile investments like peer-to-peer lending too, whose merits at a time like this have been discussed previously.
But for those already in retirement, don’t be tempted to use your nest egg funds to start opportunistically trying to play the stock market, and buying low in the wake of the market chaos. The risks are too high, and with little or no chance of recovering any losses in the future through working, it is not a worthwhile game to be playing.
Be disciplined with your withdrawals
It’s an age-old conundrum of deciding how much of your pension fund to use each year in order to strike the balance between an enjoyable retirement and sustainable long-term financing. The rule-of-thumb for drawdown retirees is that you should withdraw no more than 4 per cent of your pot each year, although recent research by Morningstar suggests that a figure of 3 per cent is more advisable. The important thing is to avoid dipping into your reserves too heavily at difficult times like these – be that for spending purposes or an attempt to expand your investment portfolio.
However, when the dust does eventually settle, it may be worth conducting an in-depth review of your retirement savings and investments, and perhaps even consider consulting an expert. Unlike younger savers, there isn’t as much margin for error, and you want to make sure that you are in the right track. It’s an exercise you only want to be doing once in your lifetime, but if it helps to ensure that you get the most from your golden years, it may well be worth your while.
The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.