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Managing your pension during coronavirus

There are a number of ways coronavirus may be impacting your choices when it comes to your pension pot.

You may be thinking about adding less to your pension in the short term, or potentially delaying your retirement date. Before doing anything, it’s important to consider how any actions you take now could impact your future.

To help, we’ve looked at some of the key questions to do with:

Making withdrawals from your pension

Should you take more income, or take a lump sum from your pension?

Coronavirus has had a big impact on the global economy and the value of your pension may have fallen as a result of market movements.

If your fund has fallen in value, any regular, or one-off, payments that you take will reduce your pension fund by a higher percentage than they did before. And this in turn could impact the number of years your retirement pot could last. 

If you decide not to take more income, or a lump sum, from your pension, or reduce the amount you take, this will help to preserve your pension pot. This is because more of your pot will be available to take advantage of any gains when the markets begin to recover.

Remember that if you make any changes, there could be tax implications and you cannot normally make withdrawals before you turn 55. For guidance, you can visit the Money and Pensions Service.

Should you consider taking your pension now to help boost your income?

If you’re in your late 50s or 60s and your income has fallen, or your business has been impacted by coronavirus, you might be thinking about dipping into your pension pot to help with your short-term finances. Of course, this will have an impact on your pension income over the longer term. 

If you’re self-employed or paying into a private pension, you could consider suspending payments into your pension plan. 

If you’re in a company pension, you could speak to your employer about your options and the possibility of taking a contribution holiday.

However, if you were to take either of the above options, you could lose out on making contributions when the market is low and there’s better growth potential.

The important thing is to take your time and not rush into any decisions affecting your pension. What’s right for you will depend on your individual circumstances, so consider taking financial advice, or professional guidance, before making any changes.

For general pension guidance, you can visit the Money and Pensions Service.

Changing your withdrawals, contributions or investments

Should you reduce how much income you take from your pension?

If your pension fund value has fallen as a result of market conditions, each payment that you take reduces your pension fund by a higher percentage than it did before. 

You may want to consider reducing the income you’re taking out of your pension until investment markets improve. That way, your pension pot may be able to recover more quickly. However, make sure that the drop in income is not at the expense of your health and wellbeing.

Remember that if you make any changes, there could be tax implications. For guidance, you can visit the Money and Pensions Service.

What happens to the contributions to your employer’s pension if you’ve been furloughed?

The government’s coronavirus Job Retention Scheme covers the required automatic enrolment contributions made by your employer, providing you pay the minimum contribution. For more details, visit the Pension Advisory Service.

Should you change where your pension pot is invested? Or sell your existing investments and hold your pension in cash?

It’s important to spend time considering your options carefully before making any decisions to switch, or sell your investments. Rushed decisions could lead to you being in a worse position in the future.

Interest rates are at an historic low. The Bank of England base rate is 0.1% as of May 2021, yet the inflation rate was 1.0% in March 2021 (source: Office of National Statistics). Any investments moved to cash could lose their real purchasing power.

If you’re considering switching to a less risky fund, be aware that you could lose the opportunity to benefit from potentially greater gains if markets recover. These higher-risk funds could bring greater gains, but they do also bring the potential for greater losses.

If you’ve selected a managed portfolio as your underlying investment, the nature of the portfolio means that it is actively managed by a professional fund manager. They’ll be continually researching the market and making adjustments to the structure of the portfolio in order to make the most of any opportunities.

For information about fund performance, visit Morningstar.

Should you consider investing in higher-risk funds to compensate for recent market volatility?

Higher-risk funds have the potential for higher gains, but this is never guaranteed. If you’re considering switching to a higher-risk strategy for short-term gain, you would need to be prepared for the very real possibility of higher losses.

You may be interested in reading these tips on surviving market volatility. We don’t advocate making big decisions until you have carefully considered all the options available to you.

Should you be trying to reinvest when the market is at the bottom?

Investments should always be seen as a long-term commitment. That way you experience the best days in the market as well as the worst. If you’re making regular investments, those worst days are not necessarily a bad thing as you’ll purchase more units for your pound.

The problem with trying to time the markets is that missing out on just 5 of the best days can have a significant impact on the performance of your investment.

Rethinking when to retire

Should you postpone when you retire?

Market conditions might mean that the pension pot you based your retirement calculations on may now be less than planned. Postponing when you retire could enable you to keep adding to your fund for longer. It could also give the markets some time to recover and get your pension pot back to the level you planned for your retirement date.

If you were planning a gradual reduction in the hours you work as you approach retirement, you may want to talk to your employer about extending this period. That way, you’ll have more time to keep topping up your pension pot.

Staying secure

What happens if your pension provider or your employer fails?

Depending on the type of pension scheme you have, you may be protected by either the Financial Service Compensation Scheme or, for occupational schemes, the Pension Protection Fund.

To find out more, visit the Financial Services Compensation Scheme or the Pension Protection Fund websites.

How can you protect yourself from pension scams?

People who are worried about the impact of coronavirus on their pensions may be vulnerable to pension scams. And pension scams can be elaborate and hard to spot.

The best way to protect yourself is to read up on how pension scams work so you can look for the warning signs. Visit the Financial Conduct Authority’s website for more on how to avoid pension scams. For guidance on other types of coronavirus fraud, visit our latest scam warnings page.

Important to know

These answers are provided as things for you to consider. They should not be taken as advice or a personal recommendation.

If you’re not sure what’s right for your individual circumstances, further information and guidance are available from Money and Pensions Service.

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