There’s been a lot to think about since Covid-19 entered our lives. Looking after our health, caring for loved ones and, in many cases, worrying about work and incomes. With financial markets moving up and down, particularly earlier this year, you may have been concerned about your pension and investments too.
People saving into pension plans and Stocks & Shares ISAs (Individual Savings Accounts) may have wondered whether they can afford to continue or if it’s the right thing to do when markets are unpredictable. Some people have stopped saving or have moved into different investments to try to reduce the risk of losing money. And there’s evidence to show that 40% of 18-34 year olds have reduced or stopped payments into their pensions*. Job losses, furlough and reduced hours have hit younger people the hardest.
Writer, actor and theatre front-of-house assistant Jess, 29, from Glasgow, has been badly affected by the Covid-19 regulations that have seen theatres close with no sign of re-opening any time soon.
She says: “As I'm self-employed in the arts, pretty much all of my work has dried up, so it has had a huge effect on my financial situation.
“My front-of-house job was part of the furlough scheme, so I had some money coming in for the majority of lockdown, but obviously because it was a reduced amount, it was definitely harder to get by. I've had to cut back on a lot of luxuries and change my shopping habits. Now that the scheme has stopped, I'm relying mostly on my partner.”
There’s no money left for putting into savings at the moment, and Jess admits she wasn’t doing much pension planning before lockdown: “I was only saving the portion of my PAYE payslip that goes to a pension scheme, which I think was very little.”
But she is staying positive about how to improve her savings and pension situation when life is more normal once again: “I definitely want to start saving again. We are looking to buy a house in the not-too-distant future, so as soon as things get up and running once more, it'll be my priority.
“I would definitely like to start saving for a pension eventually"
We’d like to give Jess and you four reasons it could be a good idea to keep on saving and investing.
1. Investing is for the long term
If you’re investing money into a pension or Stocks & Shares ISA, it needs to be money that you can tuck away for a while – ideally five to ten years, or longer. In the case of a pension you can usually access your money from the age of 55, though this age may change in future.
The reason for this longer timeframe is that money which is invested needs time to grow, and, if there’s a fall in markets, your investments have time to recover.
There was a significant fall in March 2020 but in April, we saw markets quickly pick up again when the worst of the first wave of coronavirus panic had passed. Over longer periods, the markets have, historically, made gains over the decades.
So, if time is on your side, investing could help your money to grow.
But remember that past performance isn’t a guarantee of future performance. T
2. Pensions come with extra benefits
If your employer offers a workplace pension scheme and you don’t join it, or stop paying into it, you’ll miss out on the money that your employer has to pay in on your behalf and tax relief – normally at the highest rate of income tax you pay.
A workplace pension can be a good way to save for your retirement because you pay in, your employer pays in and the government gives you a tax break on your contributions.
For example, if you’re a 20% basic-rate taxpayer, every £100 that goes into your pension plan costs you just £80. If your employer pays in £100 too, it means £200 has been paid in but it’s only cost you £80.
With some workplace pension plans, you get this tax relief automatically, with others you may have to claim some of it. Check how yours works with your employer or you can read more in Top tax tips to make the most of your pension savings.
Remember tax rules can change and tax treatment depends on individual circumstances.
3. Don’t ‘lock in’ any losses
People who have lost their jobs or seen their hours cut during the pandemic may want to tap into their savings and investments, or cut their outgoings, and that’s understandable. For some people, the pandemic is several ‘rainy days’ rolled into one. But if you have investments that have fallen in value, it may not be a good idea to cash them in because, if you do, you’re locking in your losses and not giving your investments the potential to recover from their fall.
And if you choose to reduce or stop your pension payments, you lose the potential for unmade payments to benefit from any recovery there is in the markets.
If you are able to leave these investments they have the chance to, hopefully, regain their value if there is a recovery.
4.Take control of your future
No one can control the news, the events we have to live through, the course of the virus, or what investments will do over the coming years. But you can take control of your saving and investment plans and help set yourself up for a brighter future.
It’s worth bearing in mind that one of the world’s most famous investors, Warren Buffet, is a life-long optimist. As he puts it: “Someone is sitting in the shade today, because someone planted a tree a long time ago.”
* Research reported in ‘Covid-19 stops 40% of young people saving for retirement’, Interactive Investor, August 2020
If unsure you should seek financial advice and there is likely to be a charge for this.