Protect your pension pot post pandemic

Many pension savers and investors have seen the value of their pension pots tumble due to the coronavirus epidemic – but there are ways to mitigate against future falls.

March saw the FTSE100 plunge 11% – its worst day since Black Monday in 1987 as £160 billion was wiped off shares. The market, which tracks the fortunes of the UK’s 100 biggest firms, fell below 5,000 although it has since recovered to almost 6,000 at the time of writing (7 May 2020). But, in uncertain times, how can we ensure our pensions are protected?

If you are a long way from retirement – spread your risk

If you are young and you know retirement is a long way off, the best thing to do is to check what your pension is invested in, and ensure you are comfortable with it. Many of us will have been automatically-enrolled into our workplace pension’s default fund but you usually have the option to switch away from this and pick your own investments. If you choose to do this, do not put all your eggs in one basket – ensure you invest in a range of different assets. If you are unsure about what your options are, speak to your financial adviser.

If you are nearing retirement – think about the end goal

If you are within five years of retirement and are planning to use your pension pot to buy an annuity – an insurance product that provides a guaranteed income for life – you should first reduce your exposure to potentially volatile equities so your returns are more predictable. Also ensure you shop around for the best annuity deal and tell your insurer about any health conditions as this could boost your rate. If you are planning to stay invested through drawdown, your investment time horizon might be longer, meaning you can potentially ride out short-term fluctuations in performance. You might want to consider delaying retirement, if possible, until we have more certainty. Also bear in mind if you start accessing your pension the amount you can save tax-free each year falls from £40,000 to £4,000.

If you are in retirement – monitor your investments regularly

If you are already drawing from your pension but you have kept some of it invested, regularly review your pot and consider withdrawing any cash investments first to allow your investments the opportunity to recover. Alternatively, you could just withdraw the dividends or income earned from your investments leaving your capital untouched, although paying an income could be particularly challenging right now with many companies suspending dividend payments.

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Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise.

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Source: Techlink