If you were planning to retire in 2020, it’s natural to have some concerns about the impact of the coronavirus pandemic on the economy, and on your pension specifically. You might be wondering whether you’ll need to delay retirement.
We spoke to Nicola Cornish, one of our Aviva Financial Advisers, who gave us some steps you can take to make this decision with confidence.
Calculate your pension value
Nicola tells us that the first step is to “take a look at what you’ve got.” You might not have reviewed your pensions in a while, and if you have more than one, it can be hard to keep track of the value. Make sure to check all your balances and add up the total.
As you probably know, the stock markets were shaken this year by the pandemic, and that’s affected everyone’s pension value. But the good news is that the markets have already bounced back a bit, so your balance could be higher than you think.
It’s also worth checking for any lost pensions you might have, as this could give you a surprising boost to your savings.
Review your investment strategy
Your next step, Nicola says, is to “have a look where your pension funds are actually invested. If your money is invested in a high-risk fund, is that where it should be when you’re close to retirement?”
No one knows for sure what will happen with the coronavirus, and all kinds of new developments, such as a second spike, have the potential to shake the markets again. Equally, things could look very positive, but it’s hard to predict.
In volatile times, your pension value can go up and down more than normal, and that might not be ideal if you’re planning to withdraw money soon – or if you’re already taking money from your pension through income drawdown. If you want to see fewer fluctuations in the value of your pension, it’s usually sensible to move to a lower risk fund.
To check where your Aviva pension is invested, and whether you want to move it to a different fund, just log into your online account. We have five different ready-made funds you can choose from, ranging from low to high risk. Read more about picking investments for your pension.
Plan your retirement spending honestly
If there’s one thing that Nicola emphasised, it’s to “be very realistic about what you want your expenditure to be.” Often people have a number in mind for their monthly spending but haven’t truly accounted for everything.
Usually, things like travel costs will go down when you retire but, people often want to spend a little more on nice things – and if that’s the case, you need to budget for it.
To see if your current pension savings will cover your expected spending, you can use a tool like our pension annuity calculator for guidance on how much income you might get. If it looks like it isn’t going to be enough, you’ll need to think about how you can boost your pension value, and how long that might take.
Get a State Pension forecast
It might reassure you to find out how much you’ll receive from the government, on top of your retirement savings. We heard from Nicola that “people are often surprised that the State Pension is worth more than they think it is.”
It’s quite easy to find out if this is the case. You can ask for a State Pension forecast either by signing in with Government Gateway or GOV.UK Verify or downloading a BR19 form and applying by post.
You can also check your State Pension age online, just by entering your date of birth and whether you’re a man or a woman. This will tell you when you can start to receive payments.
Consider your other assets
A lot of clients Nicola has spoken to have accumulated some cash savings over the years, as well as their pension. If you’re in the same position, this could give you more freedom to retire when you want. “If you’ve got cash that isn’t earmarked for anything,” Nicola explained to us, “that might tide you over a few years.”
So, if you’ve seen your pension balance fall and want to wait for it to recover before making a withdrawal, this doesn’t necessarily mean you need to wait before you stop working. You can make that decision based on how long you can live for on your savings and whether you’re happy to do that.
Reassess your pension contributions
One way to reach your savings target quicker is by increasing your salary sacrifice contributions. If your job hasn’t been affected by coronavirus, then you might be in a good position to do this.
But if you’re one of the people who’s been furloughed this year – reportedly over a quarter of the UK workforce 1 – you need to think about what that means for your pension.
On furlough, you’ll still be getting employer pension contributions, and you’ll still be having to make salary sacrifice contributions. However, these will be lower than normal as they’re not based on your total salary, but just the 80% you receive in furlough payments. Nicola warns, “there’s no getting away from it – for some people this might push back your retirement.”
Prepare in case of redundancy
There are, unfortunately, rising numbers of jobs at risk of redundancy because of the pandemic, so you may need to consider how this would impact your retirement plans.
One factor is whether you would receive a redundancy payment, and how you plan to use it. “Something to consider is putting that money straight into your pension,” Nicola suggests. Of course, before you do this, you’ll need to decide whether you’ll have an immediate need for that money in the short term. There’s no right answer for everything, and a financial adviser could help you understand the best option for you.
Weigh up if you want to work
Aside from the financial considerations, there are your motivations to think about.
These days, it’s not unusual for people to return to work in some form after they’ve retired, whether that’s by taking a part-time job or starting a small business.
If that’s an option you had in mind, Nicola cautions you to consider “what kind of economy might you be going back to? Is that work going to be there?”. Giving up your job now might have more permanent consequences than you intend.
During the lockdown period, a lot of people have reassessed their priorities, and you might feel ready for a work-free life. But if it’s made you realise how important your work is, that could be your reason to delay retirement.
Look at all your options
You have more retirement options now than ever before. Could a phased retirement be best for your circumstances?
Nicola explained to us how this works: “Perhaps you have £200,000 in your pension pot, but you only need to get £10,000 out now to tide you over. You could then look at buying an annuity [or other retirement options] in a year.”
By leaving most of your pension invested, you’re giving it the chance to grow and potentially recover any recent losses. If you’re planning to buy an annuity, waiting for your pension value to recover might secure you a higher guaranteed income for life.
The same applies if you’re planning to take a tax-free lump sum from your pension – it might be worth waiting to see if the markets recover when it will be worth more. Remember, though, there’s never a guarantee that markets will rise, so you’ll need to be comfortable taking that risk.
Another option you have is equity release, which unlocks some of the value of your home as a tax-free lump sum.
Ask for advice
Ultimately, Nicola says, “There’s no blanket answer for everyone. It depends on your circumstances.” So, if you need more information before you can make a decision, you can speak to an expert.
Anyone over 50 can book a free appointment with Pension Wise, for impartial government guidance. For more free resources, you can also go to the Money Advice Service or the Pensions Advisory Service. Or, to speak to a financial adviser like Nicola, you can book a call back from our Aviva Financial Advice team.