Is Now A Good Time To Invest In Your Pension?

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The coronavirus pandemic has impacted a lot of industries, particularly financially. You may think now isn’t the time to be investing money considering the volatility of the economy, but now may actually be the best time for you to invest your money. 

Is now a good time to invest?

COVID-19 has meant the investment market as a whole has seen drops in recent times and this can certainly be off-putting if you are looking to invest money. The market is starting to recover, but prior to the coronavirus it was performing incredibly well and it’s safe to say we aren’t back to this point yet. This actually means now is the best time to invest because you are likely to make smarter investment choices on a more reserved level.

It’s natural to be fearful of the poor markets and assume the worst. However, when everything is performing well and the market is in a good state, you’re more inclined to make rash investment decisions which could result in bigger losses if and when the market drops. 

How much should you be investing? 

How much you invest is completely down to your individual circumstances – there is no magic amount that will guarantee you great returns. 

We tailor our service and expertise depending on the sum of money you are looking to invest. We deal with a wide range of people with varying financial levels, from those who want to invest smaller, regular amounts on a monthly basis and those that have a one off large sum of money. 

Our initial consultation that allows us to establish the service level we both think is suitable for you and the amount of money you are looking to invest. But above all, we use this time to ensure investing is the most suitable option for you and your money. 

Having expert guidance for your investments does mean you pay an additional fee – but we establish the right fee for you and the level of service we intend to provide in our free consultation, so you come away knowing as much information about the service you will receive as possible.

Do you need to know where you want to invest your money? 

The world of investing is a daunting one and there are so many areas where you can put your money, it can seem extremely overwhelming and hard to know where to start – which is where we come in. 

When our clients approach us, it usually means they want to refrain from being heavily involved in the running of their investments. Having an expert on board means you can sit back and let us do the work, without having to worry about the finer details. 

We take our time to get to know our clients in order to get the best out of their investments. It’s important to know the interests people have and the risk levels they are comfortable with, so we can then treat each case individually and tailor our service accordingly.

How do I keep track of my investments?

How often we review your investments and track performance depends on the amount of money you have invested.

Our level of service differs depending on how much or how little our client wants to get involved. We use various platforms to monitor different types of investments. For example, if we were investing in pensions for someone, they would be able to view and access this on a daily basis. We also ensure you are always updated on any marketplace changes, huge interest rate fluctuations or if there is anything specific we feel you need to know. 

The 2007/2008 economic crisis and COVID-19

The economic impact COVID-19 has presented may reflect that of the 2007-2008 economic crisis. While we might see some symmetry in the national economy, clients that made investments during this time are currently sitting on healthy returns due to the long term nature of their investments. 

This is testament to the power of investing for a longer term. Despite natural fluctuations as well as the effect of the economic crisis, the rise in the market after this meant their investments picked up momentum. 

The confidence in the investment market has also grown since the economic crisis, so it’s expected we will begin to see upwards movement once the current coronavirus pandemic begins to ease. 

So, if you’ve been thinking about investment and want to get in touch with expert fund managers for a tailored consultation – now just might be the right time. 

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Speak To An Expert

The future can seem uncertain but one thing you can be certain of is CD Financial are here to help and protect your future. We understand how difficult it is to understand the ins and out of money which is why we will do it for you.

What are the options for income in retirement? 

In the last five years, we’ve seen a massive shift in the way that people are taking income in retirement. Back in 2015, pension freedom was brought in, which gave people a lot more flexibility as to the way they access their pensions.

Traditionally it was the case that you either looked at an annuity model, which provided a guaranteed income for life but was quite inflexible, or you had capped drawdown, which meant you could draw down up to a certain level of income from your pension pot, which generally offered a lot more flexibility. Pension freedom scrapped all of that.

Effectively, now we have the option where you can still take an annuity if you want a 100% guarantee of what your income will be.

You can opt for flexible access drawdown, which means you can kind of dip into your pot as much or as little as you need. That carries the risk that if you take too much, you might exhaust the pot and run out of money.

Also, the actual freedoms did provide people the option to fully withdraw their pension pot, but, of course, that then doesn’t provide any income and it’s how you would then look at generating income from those funds.

What’s the most popular option at the moment?

This is a report from 2018-2019 by the Financial Conduct Authority. In that report, there were 355,000 pension pots that had been accessed, which 11% of people had taken annuity. 

30% had gone into a drawdown arrangement.  4% had entered into a drawdown arrangement where they’d opted to take tax free cash only, but weren’t taking income.

55% of people had actually fully withdrawn their pension pots, which is just staggering given that your pension pot is obviously there to provide you income for retirement.

Are people aware of the tax implications on taking it all out?

Certainly there’ll be a percentage that are. A lot of people that had actually fully withdrawn their pension pot hadn’t looked to seek any advice prior to doing so.

To give you kind of a bit of an example, if you are still employed and earning a salary and, let’s say, your income was £20,000 a year, you have a pension pot of £50,000 and you decide, right, I don’t like pensions. I can’t access the money, doesn’t feel like it’s mine. I’m taking it all out, which is generally the thought process of quite a few people that take this route.

The actual tax that you would pay on that £50,000 pension pot would actually be a figure of £9,000, which, to us, is a staggering amount of tax to pay. 

It’s then a case of what you do with that money. If you then take that £41,000 and stick it in your bank earning 1%, is that actually a good way to make your money work for you?

Why are so many people not seeking advice?

Certainly, some people don’t necessarily value their pension and appreciate that it’s there to provide that retirement income.

Some people don’t like the idea of having to pay for advice in order to access their money. 

Personally, if it is a case that you’re not taking advice, not understanding the implications, not looking at actually if you draw all that out, is it going to leave you in a position where actually you have no money to live in retirement?

That points towards the value of advice and making sure that such a big decision is not taken lightly.

When are people looking at their retirement income? 

One thing we’re seeing with people is their retirement time frame is quite different. 

We’ve seen the state pension age now move from 65 to 66. We’re going to see it increase to 67, 68, and who knows where we’ll see it go from there?

We’re tending to see a lot more people staging retirement. They might stop working full-time at 60 and do some consultancy work or some part-time work, so people’s flexible income needs between then and state pension age vary massively.

We’re seeing a lot more stages in retirement than traditionally we would have seen historically.

Are Annuities Good Value?

Overnight, the landscape changed and a lot of people just considered that, right, annuities are really poor value for money. They don’t offer any kind of benefit.

For the right type of person, an annuity is definitely still a way forward.

There are still short-term options. I think there’s also a myth that if you have an annuity and you die, then you don’t see the value out of your pension. Again, that’s not quite the case because you can build in protections into an annuity so if you were to die early, there would still be value to take out of it.

The negative of that though is the more add-ons you build into annuity, it then starts to impact the income that you personally receive.

It’s quite a complicated decision to make. 

What Does Drawdown Mean?

Flexible access drawdown basically means that you can choose to withdraw as much or as little from your pension pot as you want. 

Drawing too much obviously can have long-term impacts. Certainly when we are planning, we’re looking at the short-term income need, but also balancing that off against the long-term. 

The other elements we look at is also trying to make any draw downs as tax efficient as possible.

If we can try and set pension drawdowns within just the basic rate tax environment and there are further shortfall needs, we can then maybe start to look at investments.

Every client is extremely individual and our main aim is to produce the income they need from what they’ve got in the most tax efficient way possible.

Flexible access drawdown allows us to do that, because we can increase and decrease the income levels depending on the need in a set period of time.

What happens in a pension review meeting?

In an initial meeting, it’s very much around trying to get to know the person and understanding what their dreams are and how they view retirement. 

Quite often, there is this staged look towards retirement and it’s then looking at, okay, well, in those stages, what are our income shortfalls going to be? What do we need to do to fill those gaps for them?

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

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