Retire Invest Winter 2020

The pandemic retirement conundrum Has Covid-19 disrupted your retirement plans? The economic effects of Covid-19 stretch far beyond those people infected by the virus. The obvious example is the billions of pounds of government spending, but there are many others, such as the impact on those approaching retirement. Recent research by the Institute for Fiscal Studies (IFS), discovered 13% of those aged 54 and above had revised their retirement plans. A little over half had increased their planned retirement age, while the remainder had brought it forward. Unsurprisingly the IFS found that the wealthier were more likely to be in the second category. Wherever you are on the road to retirement, there are lessons to be drawn from the IFS work: ■ ■ You may not always be able to decide precisely when your working life comes to an end – circumstances may dictate the timing for you. ■ ■ You should build in flexibility to your retirement plans as much as possible. As the state pension age continues to rise – it is now 66 – so too does the period widen between an early retirement and the receipt of the state pension. ■ ■ Relying on work to supplement lowly pension benefits is a risky strategy. Health and economic issues can bring work late in life to an abrupt end – as we can see right now. After the tumultuous events of 2020, it makes sense to review your current retirement plans. With the possibility of pension tax reform in the spring Budget, the sooner you start the process, the better. B The Financial Conduct Authority does not regulate tax advice, and levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances. Tax laws can change. 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. State pension age now 66 From 6 October the state pension age has now gone up to 66, for both men and women. The age at which people qualify for this benefit has been gradually increasing over the past few years – and further increases are planned reflecting increased longevity. Now it is 66 for both sexes, although it will rise to 67 in stages between 2026 and 2028. The government has also proposed a further rise to 68 between 2037 and 2039, but this is not yet law. However if this does go ahead, it means that if you were born in the 1970s, you will have to wait up to an extra 12 months before getting your state pension. The state pension is currently worth just over £9,100 a year, and forms a key part of many people’s retirement plans. With this in mind it makes sense to check what you will receive and when, using the government website: yourpension.gov.uk. INVESTMENT PENSIONS The importance of diversification The pandemic has highlighted the value of holding a well-diversified portfolio of investments. The Covid-19 pandemic has already taught us a great deal; and some people have been faced with relearning old lessons they may have forgotten. Global stock market performance has changed radically. While nearly all markets took a sharp downturn in February and the first three weeks of March, there has been a marked divergence in behaviour since then. The table shows how differently the various main markets have performed. The 2020 performance of the two main UK equity fund sectors, UK All Companies and UK Equity Income, meant that at 30 October they occupied the bottom two slots of the 39 sectors monitored by the Investment Association. Diversification between markets is not only about capital performance, it can also be visible in comparisons of dividends. For example, in the second quarter of 2020 the year-on-year fall in UK dividends was a brutal 54.2% while in Japan it was just 4.2%. The turbulence of 2020 has been a reminder that investment diversification can help smooth both capital and income performance. For a review of your existing investment holdings and advice on your diversification strategy, please talk to us. 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. Market Index 31/12/19- 23/3/20* 23/3/20- 30/10/20 Year to 30/10/20 UK FTSE 100 -33.79% 11.68% -26.05% US S&P 500 -30.75% 46.15% 1.21% Europe Euro Stoxx 50 -33.63% 19.02% -21.01% Japan Nikkei 225 -28.61% 36.06% -2.87% China Shanghai Composite -12.78% 21.22% 5.72% * 2020 year-to-date low point for UK, US and China markets PENSIONS C r e d it : K o n s t a n ti n K o l o s o v / S h u t t e r s t o c k . c o m Credit: Lukasz Stefanski/Shutterstock.com