54 / 55
In the back
if the markets were up, you received
a little more guaranteed income until
Then came the South Sea Bubble,
you died, while if the markets were
the Vienna stock exchange crash of
down, then so was your pot and you
1873, the crash of 1929 that ushered
received a little less income.
in the Great Depression, and Black
If you were to buy an annuity today,
Monday in 1987.
as opposed to last month, your pension
pot would be worth around a third
A history lesson
less, so your monthly income would be
All of this serves as a history lesson
correspondingly lower – until you died.
that the markets are – and always
If you were hoping for an income of
have been – volatile and prone to
£3,000 per month, the chances are
uncertainty. This brings us to the
you would have to put up with £2,000
subject of this month’s article: the
a month for the rest of your days.
effects of a market crash after or at
That’s a big, bad break.
the point of retirement. In the bad old
Now we have drawdown and that
days, things were pretty simple. At
changes everything. Yes, your pension
retirement, you bought an annuity and pot will still be 32 per cent lower, but it
PERFORMANCE OF INDEX (PRICE ONLY) IN MARKET CRASHES
1997
Asian
crisis
8,000
6,000
2000
Dotcom
crisis
2008
Financial
crisis
2020
Coronavirus
4,000
2,000
0
FTSE 100 Index 6 April 1984 - 20 March 2020
Source: Google Finance
TRUSTNET
1999
2009
If you were to buy an annuity today, as opposed to
last month, your pension pot would be worth around
a third less, so your monthly income would be
correspondingly lower
is extremely unlikely to remain 32 per
cent lower forever if it stays invested.
Most importantly, you don’t need to
crystallise any losses when you retire
– you can leave your investments to
recover, even though that may take
some time.
1987
Black
Monday
1989
[ PLATFORMS & PENSIONS ]
2019
Pot luck
In other words, you could be very
unlucky at or during retirement and
may see your pot slashed by, say, 30 per
cent, giving you less money to live on.
This is made more acute if during
a market crash you decide to 1) sell
out and move into cash, 2) buy an
annuity or 3) start drawing down
your investments after they have lost
significant value.
Recent history shows markets take
about 40 months to return to their
previous highs – that’s about 3.5 years.
This feels about right, but it depends
on the cause. With coronavirus, we
trustnet.com