With pensions taking a pummelling in the wake of the pandemic, Faith Glasgow shares some advice with older workers.
Early in January, I came across a tweeted witticism that ran along these lines:
1 January: 2020 off to a good start!
2 January: Australia on fire
3 January: WWIII declared
Fast forward two and a half months, and Australia’s fires and the US/Iran stand-off have been followed by further extensive floods and storms for the UK, a plague of locusts in East Africa, and now the Covid-19 pandemic. These days I wouldn’t turn a hair if I came across the Four Horsemen of the Apocalypse bulk-buying loo rolls and pasta in Sainsbury’s.
Like most people at this stage in the coronavirus’s progression through the UK, I am healthy and don’t know anyone who has the disease. Yesterday, Sunday 15 March, 11 people had tested positive in the London borough where I live, which equates to one in 25,000 people. On paper it doesn’t read like cause for national emergency.
But, like everyone, it’s touching my life in multiple ways. How do we best support my elderly mum and parents-in-law? Will my daughter’s hard-earned gap-year travels be able to go ahead? How will we manage the publication of this magazine when we’re working from home?
And then there’s my pension. As I realised to my cost yesterday, checking your Sipp at such a time is absolutely the worst thing you can do. Mine was down 20%-plus, and I’m under no illusion that this is the end of market volatility – yet I don’t have decades available for it to recover.
Again, there are many people in this boat, including some who transferred out of their final salary pension on the say-so of a commission-driven financial adviser, swapping the cast-iron security of an income for life for the flexibility of a generous lump sum and a life subject to the vagaries of the stock markets. I imagine the majority now wish heartily they could turn the clock back.
The current situation really hammers home how much people have lost with the demise of final salary schemes, which are in terminal decline. New data from the Office for National Statistics shows that in 2019 the proportion of employees with a investment-based pension rose above the proportion with a final salary pension for the first time, as companies have set up occupational schemes to cater for employees needing to be auto-enrolled.
Sense of perspective
Luckily, much of the largest growth in workplace pension membership has been among the youngest employees, those in their 20s. Since auto-enrolment began in 2012, take-up for this age group has skyrocketed from 31% to 80%. They have little need to fret about the impact of Covid-19 led global recession on their pensions, as they’re unlikely to be accessing their investment for several decades yet.
But for older workers, now facing the prospect of working additional years to rebuild their pension pot, these are painful times. It is easy to feel like a rabbit in the headlights, unsure whether to sell up and cut losses or try to steel your nerve and wait for recovery.
I took some comfort from a comment I saw on Black Thursday – the day the FTSE 100 index dropped 10% – from Darius McDermott, managing director at Chelsea Financial Services. He advised investors: “Remember that a diversified portfolio won’t have fallen as much as the headlines they are reading [suggest]. Many bond, absolute return and mixed-asset funds have fallen a lot less than equities and not all equity funds have fallen as much as the market. For long-term investors, hard as it may be, I think now is the time to stop looking at your investments. It won’t be pretty. But eventually they will recover.”
I slipped up yesterday when I took a peek, but in these strange times I think his advice is as good as any.
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