Platforms & Pensions
29 %
– increase in opt-outs from pension schemes from March to July
amount of preaching would make a difference . The longer-term danger is people get used to skipping contributions when the cost-of-living crisis recedes and they use the money to catch up on the things they were planning to buy . Taking five years out from contributing to your pension will have a far more damaging impact on your retirement and may force you to accept a significantly lower standard of living , or even mean you have to work into your 70s . My calculation engine shows a pattern of accepting an effective loss of about 5 % of your portfolio for every year of contributions missed in this scenario . With compounding , it ’ s likely that the longer you ’ re not investing , the bigger the deficit , while failing to buy into a depressed market means you could miss out on some significant upside .
Retiring soon or retired ? One glimmer of hope is that interest rates are rising , which should improve returns on cash savings . In addition , the state pension is pegged to inflation , but it may be difficult for the government to maintain this relationship if prices continue to climb by double digits every year . A defined contribution pension is linked to market performance , interest rates if you ’ re in cash , or annuity prices . With raging inflation , your pension isn ’ t going to buy what it used to , and rampant food and energy bills are going to punish retirees . It ’ s a question of drawing down as little from your pension as possible in the short term and being economical , particularly if you are in the early stages of your retirement . The Bank of England suggests inflation should get back to normal in around two years , meaning 2 %. The best we can hope for is there is enough growth to mitigate the damage done by this period of extreme price growth , but I would warn against moving into cash or trying to time the market .
Issue 87 - September 2022 / 65 /