Accessing your pension during the Covid-19 crisis could risk living standards in the future.
It can be tempting for those over 55, especially during times of financial difficulty to utilise pension freedoms and access their savings. However, withdrawing from your pension pot during the Covid-19 crisis could risk your living standards during retirement.
Pensions are like any other investment and follow stock market movements. Withdrawing from a pension, while markets are low, crystalises losses. This means that funds withdrawn now will no longer go up in value alongside the remainder of your pension. By withdrawing funds now it not only means that you could receive less when you retire, but it could also mean that you’re missing out on the market recovering.
No-one can be certain that there won’t be further falls. Yet history shows that, over the long term, markets recover. There are plenty of factors that will impact markets, and there may be further short-term pain—yet cashing in too soon before retirement could mean missing out on some of the market’s best days.
It’s also important to remember that a pension pot isn’t like a regular savings account and withdrawing funds is not instant. It can take up to 28 days to access funds from a pension pot (depending on what product you are invested in).
Global investments have been suffering amid the coronavirus crisis. But, the lockdown won’t last forever, and by staying focused on long-term retirement goals means you’re more likely to benefit.