Retirees who have left their savings invested in the stock market via income drawdown could struggle as this could reduce the amount they can draw
Retirees who have left their savings invested in the stock market via income drawdown could struggle as this could reduce the amount they can draw as income. In turn, this could worsen the cost of living crisis.
Global markets have crashed since Russian troops and tanks entered Ukraine, as Putin threatens the global political order.
This is primarily a nightmare for the brave people of Ukraine, but it has also smashed the value of UK pensions and Isas invested in stocks and shares.
Savers who have left their pension pot exposed to the stock market have seen its value fall sharply since January, new figures show.
More than 22 million defined contribution workplace pensions are exposed to the stock market’s fortunes, as well as millions of personal pensions.
This will hit both workers who are saving for the future, and pensioners who have left their savings invested via drawdown.
It will not affect those who have bought an annuity for retirement or have a defined benefit final salary workplace pension.
Figures from Interactive Investor show its average customer with a self-invested personal pension (Sipp) had £221,713 at the start of this year, but that has now crashed to just £196,109.
That’s a drop of £25,604, with losses accelerating after Russia invaded Ukraine, said Becky O’Connor, head of savings and pensions at Interactive Investor.
While the war was the main trigger for the crash, other factors have played a part. “Rising inflation and interest rates, and the removal of central banker stimulus, have also turned sentiment negative.”
O’Connor said you do not have to be invested in Russia to lose out. “Pension investments are exposed to the general global uncertainty caused by the war.”
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Pension and Isa investors need nerves of steel right now, said Jason Hollands, managing director at investment platform Bestinvest. “They should avoid making major changes to portfolios when markets are lurching around aggressively and not to sell unless they really need to access their savings soon.”
Nervous investors can still make use of this year’s £20,000 tax-free Isa allowance before the deadline at midnight on April 5, he said. “You can put cash into an investment platform before the deadline, then invest it in shares later when you feel more comfortable.”
Hollands added: “A sensible strategy is to drip feed money into the markets over a period of time as this helps smooth out the impact of short-term gyrations.”
History shows that stock markets and pension values always bounce back after a major crash, and selling at the bottom of the market is a bad strategy.