Workers may put off retirement to help pension pots recover from covid crisis, expert suggests
PUBLISHED: 10:58 15 September 2020 | UPDATED: 10:58 15 September 2020
Lee Blanchflower – Blanc Creative
People reaching the end of their working lives may want to consider putting off retirement until the effects of the coronavirus pandemic subside, an East Anglian pensions expert suggests.
With the virus continuing to wreak havoc on the economy, Lovewell Blake financial adviser Jonathan Matchett says for those approaching retirement, timing when to take their pension has never been so important.
“Given that for most people, their pension will be the largest investment they ever make, the turbulence in the markets caused by the Covid-19 pandemic will have impacted on most people’s retirement plans – but especially those due to retire in the coming few months,” he says.
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Ironically, before the pandemic struck, markets were looking buoyant, he says, after bouncing back from a dip in March 2019 which followed 11 years of “more or less constant years of growth”.
“The completely unforeseen shock to the markets caused by the virus has turned that on its head,” he says.
Traditionally taking your pension has meant buying an annuity, providing a guaranteed income for life.
But the level of income you can expect to receive is determined by the state of the market at the moment you bought it and prevailing interest rates.
“Clearly to do that now would be a double whammy – buying an annuity based on historically low interest rates, when the value your pension pot is likely to have been impacted by the Covid crash, is unlikely to give good returns,” he says.
But following pension legislation in 2015 there are other options, he adds.
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“If you have a Flexi-Access Drawdown pension, you can simply draw an income directly from this. Those who need to draw from their pension pots can draw the funds the need, leaving the rest invested with the hope of a market bounce when (if?) a vaccine becomes available,” he says.
An even better choice for those who can afford it is to use existing non-pension savings for income in the short-term, leaving the tax-efficient pension intact and invested while waiting for the markets to recover.
“This also has the advantage of reducing your estate for any potential inheritance tax liability, as savings are counted as part of the estate while pensions are generally not.
“The third option is to review whether now is the right time to retire at all. While most of us have a firm date to stop work in our minds, there is nothing to say you must do it at a specific age, and events such as those which have knocked us all sideways this year demand a certain flexibility,” he suggests
“Staying working for another six months means half a year more salary, a shorter period that your pension will eventually have to fund, and it gives your pension pot a chance to recover from the short-term Covid shock.”
Anyone considering what to do should review their pension provision first, he says.
“Given the current volatility, you may want to reconsider your attitude to risk. If you took your pension out before 2015, you may need to convert it to a Flexible Access Drawdown Pension in order to be able to draw down funds flexibly. This is not a complex process, but is best achieved with the help of a professional adviser.”
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