Coronavirus podcast - April 2020

16 April 2020
Find out how the Coronavirus is impacting pension investments

Katie Eagles and Lorna Blyth from our investment solutions team discuss how the coronavirus could affect our customers’ pension investments.

[ Intro ]

Royal London

[ Katie ]

Hi, I'm Katie and this is Lorna.

[ Lorna ]

Hello.

[ Katie ]

And we're part of the investment team at Royal London. And we're here to give you an update on how the coronavirus might be impacting your pension investments. Now before we get started, we just want to say that if you or a family member has been affected by Coronavirus, then our thoughts are with you. Royal London is here to help you as best we can during these really difficult times. Hopefully we can reassure you about how we're looking after your investments during this uncertain time as well as share some of the things to think about.

So, whether you're paying money into your pension or at the stage of taking money out we hope you will find this short podcast useful.

We're recording this on week three of the UK government lockdown and it does feel like life has already changed beyond recognition. Lorna, how has this lockdown impacted the economy and our customers pension investments?

[ Lorna ]

Well it does feel like right now everything leads back to coronavirus. The isolation measures we're all experiencing of course massive disruption to large proportions of both the UK and the global economy and that's resulted in a big drop off in economic activity, as well as one of the fastest largest drops in stock markets this October 1929. Now that's relevant because your pension is invested in a wide range of stock markets across the globe including the UK and the value of it was up and down depending on what's going on in the world. And as economic conditions have worsened, markets have become more volatile and this is directly impacting the value of your pension. So you'll likely have seen the value fall in recent weeks.

[ Katie ]

Definitely. And of course, no one knows yet when we will see a return to normality. This will depend on the virus numbers peaking to allow social distancing measures to be relaxed and it also assumes that the policy measures put in place by governments to support businesses and workers are successful, so that we can all start spending again on economic activity picks up. Until then pension values could actually go up and down quite a bit. And what should people be doing with their pensions in the meantime?

[ Lorna ]

Well the most important thing to remember here is that pensions are a long-term investment and that making decisions based on what's happening in the short term can be a very risky thing to do. So, it might be tempting for example to move your investments into cash for a while but if you do that then there is a rescue message on the point when the value goes back up. So, you could lose out in the longer term. There is lots of evidence which shows that the strongest positive returns tend to follow the biggest fall off. And we saw this recently in the US market with the Dow Jones index had -its biggest one-day rally since 1933. So really time in the market is more important than timing the market. If that makes sense.

The second thing to remember is that in most cases, certainly from most Royal London customers pensions are invested across a mix of assets to spread the risk and reduce the impact of falls. So, for example anyone invested in the Royal London workplace default or one of our Governed Portfolios, will hold a wide range of investments including company shares, property, government bonds, commodities, and cash. And that spread means that you're better prepared to withstand sudden market shocks. So, if one particular investment is performing poorly. You shouldn't be as badly affected. We've seen this recently where most of the investments I just mentioned have fallen since the start of the year with the exception being UK Government Bonds, which has delivered a positive return over this period as demand for them has risen during this period of uncertainty.

Pensions are a long-term investment finding anywhere between 5-45 year there's maybe even longer for some of our younger customers. And so, this is about looking beyond this disruption which relative to investment time frame will hopefully be short term. And finally, it's also worth remembering that that is a team of highly experienced investment professionals at Royal London who are making decisions on your behalf even to maximise your long-term outcomes. So, my suggestion overall would be not to make any rash decisions but to make sure that you've taken the time to understand all of your options and the pros and cons of those options. This might mean you need to speak to a financial adviser if you're not sure.

[ Katie ]

And what about people taking money out of their pension?

[ Lorna ]

So, this is where it is really important to think through all of your options and the implications. Withdrawing money from investments in markets are down tends to be a bad idea if you can avoid it because essentially you're saying your investments are at a lower price and once it's out you've lost the opportunity for the value to go back up when everything blows over. Now, the obvious complication here is that not everyone has the option to delay taking money out of their pension. And again, it's really important to seek financial advice about this. If you're not sure what to do an adviser will be best pleased to go through all of your options and help you decide on the best course of action.

[ Katie ]

OK. Thanks Lorna. So, just to summarize the key points - you might see the value of your pension has gone down. But don't panic and don't make any decisions. Pensions are long term investments and it's very normal for investments to go up and down in value. The company managing your pension should be very used to dealing with this type of event and they should be making decisions to help maximize your pension value in the long term.

If you're thinking about switching investments or if you're taking money out of your pension, we strongly recommend that you seek financial advice to consider your options thoroughly before taking any action.

 Thank you Lorna, and thank you for listening.

 

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit royallondon.com.

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.