PENSION NO-NOS AMID COVID-19

÷ HASTY DECISIONS

Poor investor behaviour is one of the biggest risks to your pension if you are in a defined contribution (DC) scheme, according to Gerry Stewart, of Fagan & Partners.

“Many people will look at a fall in stock market values as a fall in the value of their pension and some will panic and sell at the wrong time,” said Stewart.

“We have been advising all clients to remain invested as all stock market falls are temporary, so if you are not due to withdraw benefits during this time, you should have no long-term concerns. Members of pension schemes should always speak to the financial adviser advising their pension scheme before they make any hasty decisions.”

CASHING IN EARLY WILLY-NILLY

“A lot of people are being encouraged to access their pension funds early [throughout this crisis],” said Peter Griffin, of APT Workplace Pensions.

“It might seem like easy money but that money was being put aside for when you retire and really need it.”

You should only access your pension early “as a last resort”, advised Griffin. “Some people do really need the money now so if you are aged 64 or 65, it might make sense to access your fund now — though it may be best to wait until pension funds recover a bit as funds have taken a hit recently,” said Griffin.

You must typically be over 50 to access a company pension early. Should you decide to access it early, you can usually withdraw up to 25pc of it as a tax-free lump sum — and then either invest the balance in an approved retirement fund (ARF — a type of personal retirement fund) or use the balance to buy an annuity.

Should you be in your early fifties and considering accessing your pension early, due to being made redundant, you may have more opportunities around reinvesting the money in your pension than someone in their sixties has.

“If you have a big pension, you could take your 25pc tax-free lump sum — and move the balance into an ARF,” said Griffin.

“The advantage of this is that you are not compelled to take annual income out of your ARF until you’re 61. So this would be a way of accessing funds which might see you over a period of time — and then investing the balance.”

Seek independent financial advice before accessing your pension early. Be very careful about getting a lump sum paid in lieu of a pension if your boss allows early access to a DB scheme.

“Make sure the lump sum properly reflects the value of the pension being given up,” said Griffin.

÷ HEAD IN THE SAND

Don’t ignore any need to save extra into your pension when you return to work if you were temporarily laid off during the crisis and need to make up for lost time.

You are unlikely to have paid contributions into a company pension while laid off and your boss’s contributions may also have stopped.