Why You Shouldn’t Worry About Your Pension Fund Too Much – Even During a Recession
Pension funds are already beginning to recover their losses following March 2020, but many still hold concerns about what the future holds for their nest egg. Can you afford to save more, or should you start withdrawing now? Before you react, it’s important to keep some perspective. Keep in mind that pension funds are long-term investments and designed to ride economic waves. So, the longer your money is invested, the more time it has to recover. As an example, pension funds fully recovered their losses when equities rebounded during the last crisis. Since then, they’ve continued to make gains. This happens time and time again.
Rebalance your portfolio
If you are still worried about your money, talk to your pension provider to discuss what options you have or seek out a financial adviser. It is important to know and understand where your money is and how it’s being invested, particularly in turbulent times. Consider your risk appetite and time horizon. If you’re young, you’ll be able to hold your funds longer and recover any losses, so you may consider a portfolio more heavily weighted in high-growth equities. If you’re nearing retirement, you may consider moving more of your savings into safer government bonds, which have better liquidity – meaning you can withdraw your savings easier and faster.
Don’t cash out just yet!
Data from HM Revenue & Customs reveal a 6% increase in the amount of people who have withdrawn cash from their pensions in Q3 2020. You may be tempted to tap into your pension, especially during uncertain times, this is only a short-term solution that carries hefty consequences. If you start taking from your pension ahead of schedule, you could find yourself without enough funds for retirement and may have to work more in the future or even defer your retirement. Pension withdrawals also come with significant tax implications, so be weary. If you must make withdrawals, be sure it’s for a real emergency or a profitable investment.
Don’t give up on your pension
Pensions protect you when you become the most vulnerable in old age. They also allow you to enjoy the fruit of a lifetime of labor. Amid the pandemic, many have felt they cannot afford to continue paying into their pension fund due to unemployment, furloughs or decreased earnings. But pension funds are generally quite flexible in terms of payment options. Talk to your provider about adjusting the amount and frequency of your contributions. The most important thing is that you don’t stop altogether. Doing so will drastically slow down your rate of savings and you’ll certainly feel the negative impacts when you’re gearing up to retire. And finally, you’ll also feel safer in knowing that pension funds are secure investments heavily regulated and protected by the Pensions Protection Fund.