Getting your finances in shape

Have you considered the potential effects of a recession?

From declining financial markets to a troubled and crisis-ridden housing sector, we are being continually bombarded by a plethora of news stories and media coverage about the state of the UK’s financial health. In times of economic turbulence or market downturn, it is prudent, if you haven’t done so already, to start considering and planning for the potential effects on your investments and pension.

Firstly, don’t make any knee-jerk decisions, especially if you are investing for the longer term. Our service is designed to assess your current situation and provide professional advice to help you make informed decisions. Selling any investments when the FTSE 100 index and other indices are at such a low point may not be the most appropriate course of action for most investors, and if you can wait for equity markets to recover before selling any investments, you have the potential to gain from the upside of any future recovery.

Currently, some investors with a longer-term view and a higher risk-for-reward attitude may even find that some opportunities still exist by holding both UK and US equities. Investors who acquire UK, US and even European equities, all of which have fallen heavily, could benefit once markets eventually recover. If you have exposure to emerging market equities, they still remain high risk and are likely to require a longer time frame for any potential recovery.

If you are concerned about the effects on your retirement planning, the value of your pension fund may have been affected by falls in equity and corporate bond prices. For many people this will almost certainly be the case if they have a personal pension or are members of a defined contribution ‘money purchase’ occupational scheme.

Time is often said to be a healer, and if you have the luxury of targeting a retirement date in excess of five years, continuing your contributions should be an important consideration as markets are expected to recover in the longer term. If you have less time before you stop working, though, you might want to consider phasing your retirement by using only part of your fund to buy an annuity to produce income, and keeping the rest invested in an unsecured pension or an alternatively secured pension. Phased retirement is a complex area of pensions and independent advice should be sought if this route is being considered.

Working while your pension fund value has the potential to recover could be an alternative course of action you may wish to consider. During November last year, data from the Office of National Statistics showed that more people are choosing to do this, pushing the average retirement age for men up to a record high of 64.6 years, and the average retirement age for women up to 61.9 years.

If you have a defined benefit occupational scheme, your pension benefits will not be affected by a recession or stock market falls as the income you receive will be determined by your final salary. However, if you work for an employer whose solvency may be adversely affected by a recession, you should check how much of your pension will be protected if the company folds, and this is also true if you are already receiving your pension.

Currently, 90 per cent of your employer’s pension up to a maximum of £27,000 per year is covered by the government’s Pension Protection Fund (PPF). If you are expecting to retire on more than this figure and have any concerns, please talk to us so that we can assess the options available to you.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investment and income from them can fall as well as rise and you may not get back the full amount invested.