Financial Security and the wellness agenda are not phrase I’m particularly fond of as they are linked to a lot of difficult ideas I’m not equipped to comment on. Not being very introspective, I’m far too careless of my vulnerabilities and will no doubt come unstuck over time. But at 58, I am in a rhythm and complacent as it sounds, I like that rhythm.
Part of that rhythm is the rhythm of saving which I do every month with the help of payroll. Occasionally in my life I have had the good fortune to get a bonus which I have generally sacrificed to my pension saving pot so that – despite the local economic difficulties we are now going through, I feel a high degree of financial security.
So when my friends at Pension Bee sent me one of their pieces of research yesterday, I was happy to agree with their big idea
Pension savers poised to make the most of market rebound can not only recoup recent losses, but make up for years of saving neglect
Pension Bee reckon that any savings lost during the COVID-19 crisis can by caught up by increasing your pension contributions ahead of a market rebound.
PensionBee, has calculated that savers approaching retirement could make up for recent losses and get their retirement savings back on track, should markets bounce back to their pre-Covid peak values within the next five years.
PensionBee’s modelling shows that if a saver in their 50s, who has the average pension value of £48,456, makes a contribution of £10,000 while markets are down 20 per cent, they could boost their pension by around £53,000 more than if they kept it in cash over a 15-year period. This relies on markets recovering within one year and would amount to an additional annual income of around £2,000 in retirement.
If markets were to recover in three years, based on the same £10,000 contribution, the pension would be £41,500 higher over the 15-year time frame. If recovery took place in five years, which is the amount of time it took to recover following the 2008 financial crisis, savers would be £31,000 better off than if they’d kept their savings in cash.
PensionBee is encouraging savers to think twice before moving their retirement savings to low-risk, low-return funds which as well as offering limited potential for growth, could lock in the recent losses made by markets. To take full advantage of the eventual market rebound, savers may wish to consider increasing their contributions, which will usually be eligible for tax relief. If a basic rate taxpayer makes a £10,000 contribution, this would be increased to £12,500 due to a 25 per cent tax top up from the government.
Romi Savova, Chief Executive of PensionBee, commented:
“Time and time again, periods of economic uncertainty have proven to be a great opportunity for investors of all sizes to benefit. Downturns can often enable investors to take advantage of price falls, leading to greater returns during market recovery. While the 2008 financial crisis took c.5 years to recover, it is possible, given the speed of the downturn in this bear market, for markets to recover more quickly, say in one-three years. If savers can afford to make additional contributions to their pensions now, ahead of recovery, they could make up for years of savings neglect and put themselves in a strong position for retirement.”
This may sound a little self-serving but there’s no harm in Pension Bee serving itself while encouraging sound financial practice amongst us savers.
There has already been a bit of a market rebound and we should be aware that things could get a lot worse before they get better but – coming back to my original point – the rhythm of saving is what leads to financial security and financial security makes us feel food.
So “keep saving” and I’ll keep blogging! Savings one of the sensible rhythms of everyday life that keep us going through the difficult time – and this is a difficult time.