What volatile markets mean for your pension

Recent stock market falls in response to the coronavirus crisis are especially worrying for those who are approaching retirement or who are already in drawdown.

Older couple sat at home looking at laptop

Many older people will have seen the value of their retirement savings plummet in recent weeks and may be wondering which way to turn. For example, some might be considering delaying retirement in the hope that markets recover, whilst those currently in drawdown who are using their pension to provide them with a regular income may be thinking about pausing or reducing their withdrawals to ensure they won’t run out of money too soon.

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Jonathan Watts-Lay, director at WEALTH at work, provider of financial education and guidance in the workplace, said: “If you are due to retire soon, these volatile markets are understandably concerning, but it’s important not to panic. Instead, consider using your state pension and other assets for income in the short term, or even consider delaying your retirement, to give your pension time to recover.”

If you’re in drawdown

If you’re currently in drawdown, you’ll need to think carefully about whether your current withdrawals are going to be sustainable.

Jon Greer, head of retirement policy at wealth management group Quilter said: “For instance, someone with a £100,000 pot might have set-up withdrawals of around 4%, or £4,000 per annum. But they now face a tough decision. If their pot has fallen in value to £75,000 then £4,000 represents a withdrawal rate of around 5.3% a year, which may not sound a lot but creates considerable uncertainty about how long their pot will last.

“To mitigate the risk of ruin, they could keep their withdrawal rate fixed at 4% to preserve the longevity of their pot, although this would see the income from their pension drop to £3,000 a year. This is a difficult decision and individuals need to decide whether they are willing to forego some income today in exchange for greater income security in the future.”

If you’re not sure how to proceed, you should seek independent financial advice.

Claim what you’re entitled to

If you’re struggling financially during this difficult time, make sure you claim any help you might be entitled to. For example, according to the Department for Work and Pensions, around 1.3m people who are eligible for Pension Credit, a means-tested benefit, don’t currently claim it.

Pension Credit is made up of two different parts, the Guarantee Credit and Savings Credit. The Guarantee Credit part up your income to a guaranteed weekly amount, which in the 2020/21 tax year is £173.75 if you’re single, or £265.20 if you’re in a couple. If you reached State Pension age before 6 April 2016, you may also qualify for Savings Credit. This could give you up to £13.97 extra a week if you’re single, or £15.62 if you’re a couple.

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Charities including Turn2us.org.uk and Entitledto.co.uk have free benefits calculators which you can use to see which benefits you might qualify for.