Published On: Thu, Aug 20th, 2020

Pension pot warning issued to retirees amid UK 2020 recession | Personal Finance | Finance


Last week saw the UK officially fall into the deepest recession since records began, following two successive declines in GDP. Figures released by the Office for National Statistics (ONS) last Wednesday revealed the UK economy shrank by 20.4 percent between April and June compared with the first three months of the year.

It followed a 2.2 percent fall seen in the previous three months.

However, as lockdown restrictions eased, the UK economy saw growth of 8.7 percent in June, monthly figures show.

Amid the uncertainty surrounding the coronavirus crisis, many have been left facing big financial decisions.

And for some, protecting pension savings will be a priority.

Recession-proofing these funds is something which Andrew Megson, executive chairman of My Pension Expert, has shared his expertise on.

READ MORE: 

Speaking exclusively to Express.co.uk, he shared three top tips on the matter.

1) Pause or cut down on withdrawals

“Pension providers invest clients’ pensions in various investment funds, in order to maximise their value over time,” explained Mr Megson.

“However, with markets in turmoil, many consumers will be concerned about the value of their pension plummeting. Consequently, many people over the age of 55 may look to take advantage of pension freedoms and withdraw their cash.

“Indeed, panic caused by the onset of the coronavirus pandemic has already driven one in eight (12 percent) consumers to withdraw cash from their

pension without seeking financial advice, according to research from My Pension Expert.

“Such decisions could mean retirees soon find their pension pot completely dried up.

“It would therefore be advisable for consumers to pause withdrawals from their pension and instead rely on other sources of income.

“Indeed, many drawdown schemes allow clients to hold back a few years’ worth of cash, which they are able to withdraw during emergencies – providing a decent financial buffer for retirees without withdrawing from their pension pot. Thus, the funds are given time to level out as the market calms.

“That said, for those who are unable to pause withdrawals all together it would be worth switching from fixed sum withdrawals to fixed percentage withdrawals.

“This means that retirees would always be withdrawing a percentage of what remains in their pension pot, rather than taking out lump sums regardless of how much money is left.

“This will admittedly mean that a household’s income will reduce, so budgets might be tight for a while. However, it slows down retirement spending, thereby ensuring that retirees don’t run out of money in the long-term.”

2) Consider alternatives

“When faced with economic downturns, some consumers might use this as an opportunity to review their retirement plan and consider different options,” suggested Mr Megson.

“For example, some retirees may opt to use part or all of their pension pot to purchase an annuity – a product which guarantees a fixed monthly income for the rest of their lives (or for a set period of time agreed with the annuity provider).

“This could be a viable option for retirees to keep up with their pension investments. It could also offer retirees some much-welcome peace of mind throughout such a challenging period.

“That said, this option might not suit all savers. After all, annuity rates are not too generous at the moment, due to longer life expectancies, and historically low interest rates of 0.1 percent.

“There are still decent deals available, so consumers would be wise to conduct thorough research and seek advice regarding annuity options.”

3) Seek advice

“These are extremely challenging times. However, panic needn’t dictate consumers’ financial decisions,” insisted Mr Megson.

“I urge consumers to be rational and seek independent financial advice to ensure they make informed decisions about their retirement plans.

“Advisors will be able to present people with the best retirement finance options to suit their particular needs. This way, pension planners will feel

more in control of their financial future, allowing them to look forward to retirement.”



Source link

About the Author

-