Retire Invest Spring 2021

What can we learn from the Covid-19 pandemic? As we pass the various one-year anniversaries around the Covid-19 pandemic, there are some useful lessons to draw for your financial planning. On the same day that Chancellor Rishi Sunak announced Covid-19 support measures in his first Budget, the World Health Organisation declared a pandemic. Since then, Mr Sunak has regularly returned to Parliament to announce further support schemes. If you take a step back, the pandemic experience has offered some important financial lessons. The value of an up-to-date will Over half the adult population does not have a will, and Covid-19 had many scrambling to put something in place, or make changes to an existing will that was no longer relevant. This urgency came at a time when there were many obstacles to writing or updating a will. These difficulties have since eased, but the importance of having an up-to-date will remains. Stay calm Both the UK and US stock markets fell by about one third between 19 February and 23 March 2020, the date the first UK lockdown started. Any investor who took fright on 23 March and sold up would have chosen the worst time to do so. More stoic investors were rewarded with a recovery. For example, from 23 March 2020 to the end of the year, the FTSE 100 rose by 24.5%. Your retirement plans can shift The pandemic has had a major impact on working patterns. Research by the Institute for Fiscal Studies revealed that many people have revised their retirement plans. As a response to the pandemic, one in eight workers aged 54 and over changed their planned retirement age, with most opting to retire later, not earlier. B The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The Financial Conduct Authority does not regulate will writing and some forms of estate planning. Pension contributions fall in 2020 UK employees contributed less to workplace pensions last year, as the financial effects of the coronavirus pandemic hit. Employee contributions into pension plans fell by 11% from April to June 2020 compared with the previous three months, according to Office of National Statistics (ONS) data. Over the same period, which coincides with the first Covid-19 lockdown, employer contributions also fell by 5%. During this time, many people’s pension contributions were maintained by the government’s furlough scheme. This temporary fall in overall contribution rates is against a backdrop of significant growth in recent years, with 10 million people having joined a workplace pension through auto- enrolment by 2019. Membership of pension schemes remains stable, despite these dipping contribution levels, says the ONS, which has not released data on contribution levels for the rest of 2020. We have yet to see the effect of rising unemployment and ongoing economic difficulties on these figures. PLANNING PENSIONS Credit: eamesBot/ Shutterstock.com Intergenerational appeal of ESG investing Renewed interest since the outbreak of Covid-19 in more responsible and sustainable investment products has seen a significant increase in the amount flowing into funds that explicitly take account of environmental, social and governance (ESG) criteria, alongside conventional financial metrics. This trend has been on the back of a relatively strong performance from the ESG sector when compared with more traditional non-ESG funds. This shift of ESG factors into mainstream investing is set to be supported by legislative changes. Financial advisers will soon be required to ask clients about their attitudes towards ESG when advising on suitable investments. Younger investors are often seen as driving demand for ’greener’ products. But these changes will mean investors of all ages will be asked to consider how their money is invested, and whether they want to bring ESG factors into the investment mix. Across families, older investors may want to revisit their portfolios and consider what kind of legacy their investment history may leave the next generations. Grandparents are increasingly asking whether it makes sense to invest successfully for profit if the environment suffers in the long term. Oil companies, mining giants and airlines, for example, may have delivered good profits for their investors in previous decades. The question for maintaining a healthy portfolio, however, is whether their business models remain as profitable as the world transitions to a low carbon economy, or are there new growth opportunities for companies devising, for example, renewable energy solutions? ESG funds also consider ‘social’ issues as well as environmental factors, which might include a company’s track record on executive pay, boardroom diversity, tax policies and transparent supply chains. They don’t, however, automatically exclude certain sectors or companies, unlike some ‘ethical’ funds. ESG analysis is designed to identify potential risks and opportunities, although like all investment judgements, these may not always turn out to be correct in retrospect. B The value of your investments and the income from them can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances. INVESTMENT