The Long Game

With uncertain times at present, many planning for retirement may be wondering if their pension saving is worth it at all, as they focus on the here and now. Julian Mund of the Pensions and Lifetime Savings Association, offers some useful pointers

Although finances are under strain for many at the moment, it’s important to keep in mind that when it comes to pension savings, playing the long game is what matters. Market volatility and uncertainty over what the future employment landscape my look like, may prompt you to look at your short and medium-term household finances, but in the majority of cases, the best action is to stay the course with your workplace pension. Past experience suggests that shares and other asset prices will recover over time.

Defined Benefit (DB) Pension

A DB pension (final salary scheme) scheme bases pay outs on how many years you have worked for your employer, the salary you’ve earned and the age you retire. More than 28 million people in the UK have this type of pension. You may be particularly likely to have one if you have worked for a large employer or in the public sector.

The retirement benefits for people with this type of pension are not directly affected by stock market movements – whether the volatility is due to coronavirus or something else. Employers are responsible for making sure there’s enough money when you retire to pay your pension income.

The Pension Protection Fund has a duty to protect people with a DB pension in cases where an employer becomes insolvent.

 Defined Contribution (DC) Workplace Pension

Meanwhile, around 17-and-a-half million people have a defined contribution (DC) workplace pension. With this type of pension, savings are built up through a combination of your own and your employer’s contributions, and the returns on investments made by the scheme that manages your savings. The Government also contributes through tax relief.

You might be considering opting out of your workplace pension. But think very carefully about how this will impact your income in retirement. Opting out means you will no longer receive the benefit of contributions from your employer.

You may be worried about recent falls in the value of the stock market and wonder how it impacts your pot. But bear in mind too that financial markets have recovered from shocks in the past.

It’s worth noting that the contributions you and your employer make to your pension now may buy a greater number of shares at a cheaper price. And professional investors managing your workplace pension pot may have already acted to position your investments, so they’ll be ready to benefit from an eventual recovery.

Also, remember DC pension savings benefit from a range of protections if companies looking after them get into trouble.

State Pensions

Thirdly, there’s the state pension, which is paid by the Government. The amount of state pension you will receive is based on the number of years you work or undertake specific caring activities such as bringing up children.

If you are considering giving up pension saving, bear in mind that your family could miss out on valuable death benefits which are tied to your scheme. With pensions, like with wills, it’s also worth checking that your nominated beneficiaries have been updated to reflect your family circumstances and your wishes.

On a final note, for people in a defined contribution scheme who are close to retirement, it may be necessary to take stock of when you plan to retire and how much income you can expect to have. Consider getting free Government advice from the Pensions Advisory Service or Pension Wise.

www.plsa.co.uk

www.pensionwise.co.uk

www.pensionadvisoryservice.org.uk