How current affairs impact the markets, and pensions, is both a complicated and important topic. Our market updates help your employees get to grips with how the news headlines might impact their pension.
The coronavirus is a huge talking point worldwide. In this update, our investment team distill the impact this is having on pensions and if your employees are concerned, why not to panic and make any knee jerk reactions.
You can listen to the podcast below.
Hello I’m Katie, and this is Kirsty [Hello] and we are part of the investment team at Royal London.
We’re here to give you an update on how the coronavirus might be impacting your pension, and some of the things to think about if you’re unsure what to do. And I should say that this is an important for everyone invested in a pension – so people who are still paying in and particularly people who are at the stage of taking money out.
So Kirsty - it will have been very difficult to have missed the developing news stories regarding the coronavirus and the impact that’s having on a global scale at the moment. We’ve got large parts of some countries on lock down; sporting events being cancelled; transport links being restricted etc. So there’s a lot going on but why is all of this relevant to pensions?
Well, in a nutshell, it’s relevant because your pension is an investment, and the value of investments go up and down depending on what’s going on in the world.
You’ve just described a range of containment measures being taken to try to prevent the spread of the virus which, from a public health perspective, is a no brainer. From a business perspective these measures can actually be quite damaging. So for example any business which sells products wholly made or with parts made in China will be struggling with supply issues. Apple is a prime example – they’ve already warned that there could be an iPhone shortage soon which will of course hit their profits. Travel companies are being hit too – because nobody wants to fly anywhere!
Pensions are invested in these types of companies and markets have a habit of reacting very strongly to news like this. So what people will be experiencing just now is that the value of their pensions could have dropped quite significantly over the past week or so.
What we don’t know at the moment is how effective these measures will be in containing the virus, so we don’t really know yet what to expect in terms of whether things are going to get more or less restrictive over the coming weeks. So pensions values could actually go up and down quite a bit while we get more clarity. What should people be doing with their pensions in the mean time?
The most important thing to remember is that pensions are a long-term investment and that making decisions based on what’s happening in the short term can be a very risky thing to do. It might be tempting for example to move investments into cash for a while – but if you do that then you might miss out on the point when the value goes back up so could lose out in the long term. The second most important thing to remember is that in most cases, certainly for most Royal London customers, there is a team of highly experienced investment professionals who are making decisions on your behalf, aiming to maximise your long-term outcomes.
So my guidance overall would be not to make any rash decisions, but to make sure you’ve taken time to understand all of your options and the pros and cons of those options. This might mean you need to speak to a financial adviser is you’re not sure.
We’ve got tax year end as well as a budget statement coming up so people will be wanting to make sure they’ve made the best use of their various reliefs and allowances. Should they carry on as normal?
Well actually most of that will be people wanting to put more money into their pension. Putting money in when markets are down like they are at the moment can be a really good thing for long term outcomes. Because you’re essentially buying your investments at a lower price, and the hope and expectation is that the value will go up again once everything blows over. Of course that’s not a guaranteed outcome.
And what about people taking money out of their pension?
This is where it’s really important to think through all of your options and the implications. Withdrawing money from investments when markets are down tends to be a bad idea if you can avoid it – because you’re essentially selling your investments at a lower price, and once it’s out you’ve lost the opportunity for the value to go back up when everything blows over. So the opposite of what we’ve just been talking about.
The obvious complication here is that not everyone has the option to delay taking money out of their pension. Again, it’s really important to seek financial advice about this if you’re not sure what to do – they will be best placed to go through all of your options and help you decide on the best course of action.
OK thanks Kirsty so just to summarise the key points:
- You might see the value of your pension has gone down, but don’t panic and don’t make any rash decisions
- Pensions are long term investments – and it’s very normal for investments to go up and down in value
- The company managing your pension should be very used to dealing with this type of event and they should be making decisions to help maximise your pension value in the long term
- If you’re thinking about switching investments, or if you’re taking money out of your pension, we strongly recommend that you seek financial advice to consider your options thoroughly before taking any action
Your employees can find the podcast on their pension scheme website.