The past few months have been a worrying time for investors as they question the impact of Covid-19 on all parts of their life and personal finance. We have identified five main questions that our clients have focused on relating to their investments, pensions, insurance and savings.
How does coronavirus (Covid-19) affect my investments?
As you are aware Covid-19 has had a global impact, and everyone who is invested would have felt the effect of the pandemic on their investments in one way or another.
While everyone’s personal circumstances vary, our clients generally accept that it is better to leave investments intact if this remains possible. This will give them the opportunity to recover any value lost as markets slowly improve. That’s not to say that investments will not face further volatility but our belief is that over time global markets will improve.
Furthermore the current fall in the markets from their highest point six months ago could present new opportunities for investors who have capital to spare, but this should be done in alignment with your appetite for risk and capacity for loss and an investment horizon of at least five years.
We would encourage our clients who may be considering disinvesting or making new investments to talk to us so we can guide you through any decisions you may be contemplating.
What about my pension?
Covid-19 could have pension implications where the value of your pension is driven by the performance of its underlying investments. We understand that people may be under financial pressure and may be considering drawing down pension funds to support their personal spending.
However, it’s important to consider the longer-term implications that this could have.
Given current market performance, withdrawing funds could have an erosive effect on your pension particularly in the light of future market volatility. In addition certain flexible drawdown situations, such as putting a pension pot into a flexi-access drawdown scheme, can trigger the Money Purchase Annual Allowance (MPAA) – a measure that reduces the amount that can be saved tax-free into a pension pot every year from £40,000 to just £4,000.
Those considering accessing pension funds now but hoping to rebuild, or continue building, pension savings in the future will need to remember that any contributions they make that exceed the MPAA will be taxed at their marginal rate of income tax.
Consequently it is important to seek advice to ensure you are aware how any pension decisions could affect you further in the future.
What about my savings?
We strongly recommend that cash is available to deal with unforeseen emergency expenditure, and generally would recommend you have 3 months’ worth of income in cash which can be accessed in an emergency quickly.
However, with interest rates at historic lows, it’s advisable that funds are only kept in low-interest accounts to provide for emergency or planned expenditure over the short term – any longer and the value of money could depreciate in real terms.
Should I consider protection cover?
The possibility of disruption to your day-to-day life from Covid-19 underlines the importance of protection cover to help mitigate the financial impact of any sort of illness or injury.
It is a good idea to review what cover you currently have and whether this is the right level of cover to afford you adequate protection both for you personally and for your business.
We would be delighted to explore this with you and to present you with a recommendation as to where we consider shortfalls exist and what solutions are available to address this.
Is there anything else I can do to support my finances?
If you are experiencing personal financial pressure at the present time there are options available that may be suitable for you such as considering seeking a ‘mortgage payment holiday’ on your mortgage ( a temporary suspension or reduction of repayments on mortgages.)
The Chancellor has obtained the agreement from all lenders to offer mortgage payment holidays for up to three months to those affected by the coronavirus.
You will still be liable for any payments deferred but the temporary relief could free-up cash during this uncertain time to help meet other day-to-day expenses.
Finally for those who need to access larger amounts of capital, possibly to help children in this trying period or to finance their lifestyle further, a life time mortgage may be appropriate but as in the case of any other financial decision, it’s important to get advice to ensure this is the right option for you.
Should you need any further information or advice we would be delighted to assist you further.