Brexit. Covid, recession, inflation, stock market volatility. There may still be some stormy financial weather ahead and making sure your pension plans are watertight might be the best way to prepare for it. Your pension may be your income when you finish your working life. You need your pension to be working as hard as possible now to give you a comfortable lifestyle then.
At Continuum, we are looking at the potential impact of economic uncertainties on pensions – and why it could be time for a review.
What are the threats to your pension?
Pension funds are investments. The stock market took a hit at the beginning of the Covid crisis, and some pension pots suffered as a result. Most will probably have recovered with the market – but probably is not really good enough when your financial future is at stake. Of course, the threat of recession and uncertainties about Brexit are still with us. They could all affect the performance of investments, and hence the wealth built up in our pension pot – and the pension you will receive.
The financial markets change constantly. If you set up a scheme which has been following the same investment approach since day one, it is all too easy to find that your pot may not have accumulated enough funds to support you during retirement.
You may find that your pension is on target to deliver the sum you wanted – but that inflation and your own increased expectations will mean that you need a larger pension pot than you once thought you did.
But the possibility of a pension shortfall is only one of the reasons why you need to review it now. What you want from it may have changed.
Your life may have changed. So should your pension plans.
You may have had the foresight to set up a pension plan in your 20s, as soon as you started to find your feet in your career. This is all well and good, but too many people fall into the trap of believing that with a pension in place, they have done all that they need to do.
There are several reasons why this is not true. You may no longer enjoy your work and want to retire early – or need to for health reasons. You may want to take advantage of pensions freedoms – call on your pension pot for cash to buy a retirement home abroad for example, or to turn a hobby into a small business to enjoy in your golden years.
You may want to consider a drawdown, rather than an annuity as the answer to your funding needs.
Understanding the possibilities that your pension offers is another reason to have a review now.
What exactly is a pension review?
A pension review is where your current pension scheme or schemes are carefully examined to ensure that they are on course to deliver the financial targets you have determined you need. This will mean looking at their past, present and projected performance, and at your financial resources and needs.
You will need the help of your Continuum adviser, who will be able to obtain up to date performance figures from your pension provider, and who has the necessary skills to interpret them to see their true significance.
The process will involve such things as how much your pension funds have grown, how their performance compares to that of other similar pensions schemes – and most important of all what can be done if your pensions are falling short of your needs.
Alternatively, a pension review could show that your original options are performing poorly, and that by transferring to a different plan, your funds could grow at a faster rate.
It could let you look at the risk involved in your current pension investments, and whether this fits your current needs – remember, higher risk could mean greater chance of higher returns, but it could increase the chance of losses too.
Get the support of an expert for your review
Getting what you need from your pension can be complicated enough in stable economic conditions. When the outlook is stormy, getting professional financial support for your pension planning is particularly important.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
The value of an investment can go down as well as up. Past performance is not a guide to future performance.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.
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