If you have a pension which is defined contribution in nature and you had been thinking of retiring in the near future then it is likely that the Covid-19 crisis has implications for you.
When contributing to a pension a market correction like we are seeing at the moment is beneficial as it gives you a better entry point for contributions (you get more bang for your buck) but maturing your pension during this crisis could be very damaging to your income in retirement as, if you withdraw a significant amount when values are down, you crystallise any losses which have been incurred. If you have an entitlement to take a lump sum from your pension when you retire then it is especially important that your pension be managed with this in mind in the lead up to your retirement date. This is why we encourage our clients to consider whether they need to de-risk as they approach retirement. This time last year I wrote an article about some of the factors people should consider in this regard. Some people will choose to de-risk or partially de-risk, and for others their personal circumstances may mean that staying invested in risk assets makes sense.
If you (or your adviser) had the foresight to allocate an amount which matched your retirement lump sum to Cash prior to the crisis, you could mature it now without any crystallisation of losses as the funds which are in Cash won’t have reduced in value significantly and can be used to pay your retirement lump sum. The balance of your pension can (if you choose this option) be transferred to a post retirement product called an Approved Retirement Fund (ARF). Funds in an ARF remain invested so if/when the market eventually recovers, your funds will recover. No harm done.
If you didn’t de-risk your pension prior to 20 February it’s likely that the value of your pension fund has reduced in value, so if you want to retire you may have some hard choices to make. All is not lost however – there are ways to minimise the damage. If you have a pension and are considering retirement or if you want to ensure that you are prepared for the new realities we are facing, give us a call. There are significant gains to be made from taking the correct action during times of crisis.
If you would like to discuss how you can plan for a long and happy retirement, feel free to give us a call on 01 546 1100 for a no obligation discussion. We have the capability to write business remotely with no need for face-to-face interaction so it’s business as (nearly) normal for us during the crisis. You can reach us by email to [email protected] or use the Live Chat facility in the bottom right corner of the screen.
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The material and information contained on this website is for general information purposes only. Neither the writer nor Highfield Financial Planning Ltd makes any warranty as to the completeness, accuracy or reliability of the information or the suitability or availability of products or services, referred to on the website, for any purpose. You should not rely on any information contained on this website as a basis for making any financial, legal, taxation or other decision. The above post does not include all the considerations which are relevant to maturing a pension as to do so would render the post un-readable. When maturing a pension you should seek the advice of a suitably qualified adviser.
© Highfield Financial Planning 9 April 2020.
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