A considerable amount has been written about Pension Planning, both before and after retirement. Not many words though would have been written about the potential impact of a global pandemic on financial planning. The past few months are a situation that most of us could not have anticipated.
How has the pandemic affected financial planning?
Analysis by the Institute for Fiscal Studies found that 13% of workers changed their retirement plans as a result of the pandemic including 8% who were now planning to retire later. It has also been noted that there is an increasing trend towards people accessing their pension savings whilst still working.
There is much speculation about what the world will look like after Covid-19, what investment markets will do, will inflation be higher or lower, how will the Chancellor raise tax receipts? Unfortunately it is very difficult to know any of these things with any certainty. Who would have thought, after last summer’s re-bound in investment markets, and of technology stocks in particular, that the value of Apple, Amazon, Google and Microsoft would have the combined value worth more than the whole of the Japanese stock market? Meanwhile we have seen negative interest rates from several European countries.
How does the pandemic change retirement planning?
In our view this means, that for those people in or working towards retirement, they need good advice, a good plan and a contingency plan too. This need not be all doom and gloom, actually quite the opposite. The level of understanding that good planning can bring should ultimately bring the confidence to lead the best lives possible within our financial means.
The key points we would make are
- It is important to have a contingency plan and be flexible in your spending. Alongside this goes a detailed understanding of income and expenditure and how much one can safely spend.
- Alongside the contingency plan it is important to ask, and test, “what if” situations, good and bad.
- If growth is relatively low it is important to manage investment costs and in a world of potentially smaller numbers focus on a cumulative of marginal gains.
- Investment markets are by nature unpredictable and because of this, diversification is key which means owning many things rather than a few.
- Last year again demonstrated that there is a clear link between risk and returns. Holding the right balance between growth and defensive investments remains key.
- The taxation environment has been rather benign – if we see more complexity then tax planning and maximising given allowances become even more important.
What are the key features of post pandemic financial planning?
To our mind, post pandemic pension planning is about getting back to basics, having a plan, having a clear understanding of essential expenditure, using proven investment guidelines and using cash flow modelling to demonstrate whether your plans are on track.
Unfortunately it can be hard to put the value on a safety belt unless one has been in a crash.