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Coronavirus: how to protect your pensions and investments amid stock market panic

The FTSE 100 has been falling on mounting fears of tighter coronavirus restrictions

Coronavirus: how to protect your pensions and investments amid stock market panic

The coronavirus pandemic is piling pressure on financial markets around the globe. But how is it affecting the health of your personal investments and pensions, and how can you keep them safe?

The FTSE 100 has fallen slightly this week; as at 10:00 am today it rested at 5,895 points, which is 2% lower than when markets closed last Friday.

It comes amid uncertainty about coronavirus restrictions and how badly they could impact the economy – the outlook for next week is also looking pretty bleak.

The UK is seeing a resurgence of COVID-19 cases, and under the government’s ‘three-tier’ system, many towns and cities are facing more stringent measures. 

Scotland and Northern Ireland have brought in much tighter rules, and the Welsh government is expected to announce tougher measures today. Meanwhile mayors in the North of England are fighting back against stricter restrictions, and pleading for economic support.

Cases in Europe are also climbing, with France, Germany and Italy reporting record daily infections, which is bringing investor confidence down.

Here, Which? takes a look at how the continued pandemic panic could affect your pensions and investments and suggests ways you can protect your portfolio. You can navigate this story by clicking the links below:

Keep up to date on the latest coronavirus news and advice with Which?

How is coronavirus affecting investments?

If you’re an investor, you’ll probably have some money in the stock market and it’s likely you’ll have seen a fall in the value of your pot.

Tom Selby, AJ Bell senior analyst, says: ‘Very few companies have escaped the [stock market] falls, so this will have affected the vast majority of people who hold stock market investments via their pension or Isa.’

For example, the travel industry has been hit particularly hard due to ongoing suspended travel.

Budget airline easyJet and Carnival Cruise Line have exited the FTSE 100 after a major collapse in their share prices. 

Interactive Investor head of markets Richard Hunter says: ‘With no confirmed vaccine for the coronavirus as autumn approaches, there is likely to be additional strain on government resources as they attempt to stave off a second wave, as the colder weather inevitably brings further cases to contend with.

‘Prospects for a sharp economic recovery have all but disappeared, as global growth receives the new threat of a resurgent pandemic.’

He adds: ‘In the UK, the pandemic also continues to add to concerns for general economic health, including the hospitality sector where further lockdowns would pile on additional pressure. The end of the furlough scheme will likely lead to another spike in unemployment and Brexit negotiations are at a critical point.’

Market volatility

The markets will be extremely volatile, as investors weigh the effect of coronavirus against measures aimed at easing its economic impact.

Therefore, it’s hard to say how badly it will hit your investments in the short term.

For instance, in September the FTSE 100 saw a 5.3% difference between its highest and lowest point.

WealthSelect portfolio manager Stuart Clark says: ‘As we enter the final part of the year we are expecting uncertainty to weigh on markets given the magnitude of the events scheduled. 

‘Not only are we continuing to grapple with the coronavirus pandemic, but we have a US presidential election that could turn volatile and questions over whether the UK and EU will reach a trade deal, or even plan to agree on one. There are clearly reasons to be cautious.’

Oil impact on the stock market

Oil prices have been dropping amid concerns about slow demand growth since the start of the pandemic. 

In September, Royal Dutch Shell announced plans to cut 7,000 to 9,000 jobs due to the slump in oil demand.

Meanwhile, BP announced plans in June, to cut 10,000 jobs due to limited demand for oil, although there’s been no update on its plans since.

Plunging oil prices have been an issue across the world’s largest economies, amid fears of a second wave of coronavirus. 

Usually, cheaper oil prices can boost the economy as it can encourage consumer spending. However, if people continue to cut down on travel, lower fuel prices won’t make much difference. 

Oil firms may be forced to go out of businesses, causing job losses and falling investment. 

Fund suspensions

The coronavirus pandemic has also seen 18 major UK property fund suspensions take place so far, with a total of £22.4bn trapped in various funds.

Many people choose to invest in such funds, where a professional manager collects money, then invests it directly in property or in property shares.

Action in times of uncertainty such as this is crucial. The FCA rules require property fund managers to consider suspending funds during extreme market conditions.

Reports suggest managers want to protect customers by ensuring that they don’t make payments at a time when they’re unsure of the value of their underlying assets.

The table below shows which property funds have been suspended and how much they’re worth.

Ryan Hughes, head of active portfolios at AJ Bell, says: ‘While this will be hugely disconcerting for investors who are trapped in these funds, it’s important to remember the underlying reasons for asset managers making this move.

‘Fund suspensions are a tool in the armoury to protect investors and as the world looks for ways to tackle the virus, this is one necessary step to ensure that financial markets do not become totally disorderly.’

If you’re invested in such funds, there’s not a lot you can do apart from sitting tight, and looking for information and updates on your fund provider’s website.

Additional protections in property funds should be introduced soon.

Investors in open-ended property funds could now have to wait for up to six months to sell down their investments, under proposals from the Financial Conudct Authority (FCA) intended to tackle a ‘liquidity mismatch’ in the sector.  

The FCA wants to reduce the potential harm to investors in open-ended property funds, by requiring them to give notice – potentially up to 180 days – before their investments can be redeemed. 

The aim is to avoid mass cash withdrawals, which can lead to widespread fund suspensions such as those seen during the coronavirus crisis.

When will markets recover?

However, the index has fallen to levels below 6,000 points over recent months due to uncertainty over a second wave of coronavirus, and the effects of the recession on the economy.  

The economy has expanded for four consecutive months, but August’s 2.1% rise was much slower than what was seen in both June and July, when the economy grew by 8.7% and 6.6% respectively.

Experts say the coming months are likely to see growth slowing because of new coronavirus restrictions, the end of the government’s furlough scheme this month and mounting concerns over a no-deal Brexit.

Meanwhile, the UK unemployment rate has risen to its highest level in three years, the ONS says.

The unemployment rate grew to 4.5% in the three months to August, compared with 4.1% in the previous quarter.

EY Item Club, which uses a similar economic model to the Treasury, estimates that the UK could take until 2024 to return to the size it was before the lockdown. 

The UK economy fell 20.4% amid the height of the coronavirus lockdown between April and June. EY Item club estimates that GDP may contract by 11.5% over the course of 2020.

It also suggests that unemployment may rise to 9% from 3.9% and that the economy will shrink by 11.5% this year, which is worse than the 8% predicted just one month ago. 

It’s not just coronavirus that’s affecting the UK stock market –  there’s been little progress on talks for a new trade deal between the EU and the UK, meaning a no-deal Brexit could be on the cards. 

Prime minister Boris Johnson must now decide whether to keep discussions going or walk away.

Failing to secure an agreement with the UK’s biggest export market could amplify the losses caused by coronavirus.

How are regulators reacting to the COVID-19 pandemic?

UK regulators have intervened in different ways to protect the economy and it’s hoped this will also protect people’s investments.

The Financial Conduct Authority

The FCA has taken some steps to help consumers through the pandemic.

For instance, in August it told investment platforms to return some of people’s cash in their portfolios who pulled money out of their stocks and shares Isas during the pandemic, in order to protect investors from paying too much in fees and losing out if a firm fails.

It says it expects companies to contact clients and consider returning cash if it would be better suited to a bank or savings account. 

At the start of the pandemic, the watchdog also wrote to all UK-listed firms on 22 March to ban them from publishing their annual results for at least two weeks.

The aim was to prevent investors from acting on out-of-date information, but it also means that markets can’t be informed of the financial position of firms.

The watchdog now has a dedicated coronavirus support hub on its website, which will tell you about how various consumer organisations can help you, plus general financial guidance.

Bank of England

The economic fallout has also forced the Bank of England (BoE) to cut interest rates more than once.

The BoE cut the rate from 0.75% to 0.25% on 11 March, then just eight days later on 19 March reduced it further to 0.1%. 

Theoretically, lower interest rates should mean at least some good news for stock markets.

This is because the rates at which companies can borrow money from banks will also be lower.

Lower costs mean there’s more chance for them to make a profit, which in turn may lead to share prices increasing.

The BoE voted to keep the base rate at 0.1% again in September, but the continuing coronavirus pandemic makes the outlook for the economy very uncertain. The BoE has been considering taking the UK into negative interest rate territory for the first time ever. 

This week the Bank sent letters to the CEOs of several financial firms to ask how their company would cope if it were to reduce the base rate to 0% or to introduce a negative rate.

Prudential Regulation Authority

The Prudential Regulation Authority (PRA) also requested banks suspend dividends and share buybacks until the end of 2020, and to cancel any outstanding payments. 

In response, lenders including  Barclays, HSBC, Lloyds, NatWest, RBS and Standard Chartered said on 31 March that they will not be returning any dividends to shareholders, or buying back their own shares until the end of 2020.

The banks also said they would cancel all outstanding dividend payments from last year amid recession fears. 

This gave the banks an additional financial cushion worth nearly £8bn in total, as they were pushed to increase lending to businesses and households during the coronavirus lockdown. 

The regulator also said it expected banks not to pay any cash bonuses to their top members of staff.

How are firms reacting to the COVID-19 pandemic?

Other UK listed firms have also been scrapping dividend payments. 

According to the Link UK Dividend Monitor, 176 dividend-paying FTSE companies cancelled their payouts between April and the end of June 2020. Across the globe, investors lost more than $100bn (£760m) during this time , according to global asset management group Janus Henderson.

This year is set to be the worst for dividends since the last financial crash more than a decade ago.

According to AJ Bell, FTSE 100 dividends are forecast to fall 24% (£18bn) in 2020, compared with last year.

It says 35 firms have cut dividends for 2020, with Shell, HSBC and BP topping the list.

However, data from Morningstar suggests some firms have restored dividend payments, such as insurance giant Admiral, specialist engineering group IMI and packaging and paper group, Mondi.

Should I be concerned about my savings in the long term?

The short answer is no.

While the coronavirus will likely continue to rattle markets, this doesn’t necessarily mean long-term investors should be overly concerned.

This is because volatility in the stock markets is normal and markets often rebound quickly once immediate issues are resolved.

Jonathan Raymond, Quilter Cheviot investment director, says: ‘The world always carries uncertainty and there is enough of it about.

‘The trouble is that [stock] markets generally trend upwards over the longer term, even though it’s not unusual for them to fall by 10% over a short time.

‘The FTSE 100, for example, has regularly fallen by 10% since 1990, although it’s relatively rare for it to fall by more than 20%.’

Tom Selby says that at times like this ‘it’s important for investors not to panic’.

He adds: ‘Anyone investing in the stock market should be thinking in terms of five years or more, rather than weeks or months, and that is the context through which to view the current turbulence.’

Chancellor Rishi Sunak has cancelled the Autumn Budget, but delivered a ‘Winter Economy Plan’ detailing how the government plans to support jobs over the next six months and what will replace the furlough and self-employment support schemes.

The Which? Money Podcast

How is COVID-19 affecting my pension?

If you have a defined contribution pension – whether private or through work – your savings have probably also been hit quite hard as a consequence of coronavirus.

This is because pension schemes invest in the stock market, too, so big rises and falls will have an impact on how much is in your pot.

Although now, Moneyfacts data shows pension fund performance has increased by 13% from April to the end of June, with the average pot recovering much of the ground lost at the start of the year when COVID-19 first hit financial markets.

Pension funds have now recovered much of the value lost during January and the end of March, however, values still remain 4.4% lower than at the start of January.

It’s important to remember that pension savings, such as any investments, are usually a long-term bet.

If you’re young, you shouldn’t be that concerned as you have lots of time for markets to recover before you take your pension.

If you’re older and close to retirement, your pot could have taken a bigger hit.

However, it’s worth noting that part of your pension will also be invested in ‘safer’ places such as in bonds, which are really low risk and usually offer a fixed rate of return. The older you get, the more schemes tend to choose to invest in such assets to limit risk to your pot.

This is how your pensions are typically invested.

If you’re concerned about the value of your pension, most schemes have online platforms where you can see how your investments are performing, and how much is in your pot.

Steven Cameron, Aegon pensions director, says: ‘The current market turbulence will no doubt be concerning for individuals whose pension savings are invested partly or fully in the stock market.

‘Those with an adviser should contact them as the first point of call. There is a risk that taking “panic” action might not be in someone’s best longer-term interests.

‘If you’re about to retire and were planning to buy an annuity, you face an additional challenge as the 0.5% cut in bank base rates has meant annuity rates have also fallen.’

Mr Cameron also notes: ‘If you’re already using drawdown, or plan to move into drawdown soon, you might also want to avoid taking out any more than you need to while fund values remain depressed.

‘The more you can leave invested, the more you will benefit if stock markets recover.’

Paying into your pension

It’s also really important to continue contributing to your pension, if you can. 

Canada Life research shows nearly a quarter of workers have stopped paying into their pension or actively considering it because of coronavirus. 

The most common reason given for opting out was needing money for essential spending, but many people cited redundancy or being furloughed.

You can opt out of your pension, but before you make any decisions, it’s worth doing some pension planning to see what kind of retirement you wish to have and only opt out if you really can’t afford to keep paying in. 

According to Which? analysis, to have a comfortable retirement you’ll need £169,175 in your pension pot if you’re a couple or £456,500 if you want a more luxurious lifestyle.  


How much should I withdraw from my pension?

You’ll need to think carefully about how to protect the longevity of your pension savings so you have enough to last.

Jon Greer, Quilter head of retirement policy, says: ‘For instance, someone with a £100,000 pot might have set-up withdrawals of around 4%, or £4,000 per annum.

‘But they now face a tough decision. If their pot has fallen in value to £75,000, then £4,000 represents a withdrawal rate of around 5.3% a year, which may not sound a lot, but creates considerable uncertainty about how long their pot will last.

‘To mitigate the risk of ruin, they could keep their withdrawal rate fixed at 4% to preserve the longevity of their pot, although this would see the income from their pension drop to £3,000 a year.

‘This is a difficult decision and individuals need to decide whether they are willing to forego some income today in exchange for greater income security in the future.’

The table below shows how a retiree with a portfolio of £100,000, taking annual withdrawals of £5,000, could see their portfolio be 22% worse off if they experienced losses in the first two years of retirement, compared with having the same losses in years four and five.

Mr Greer says: ‘This [the fall in value] is due to a process known as ‘pound-cost ravaging’, where because of declining markets more investment units have to be sold to generate a desired income level, thus depleting the portfolio size during the early years of drawdown.

‘One way to avoid this and allow your pot to recover is to take your income from the dividends and bond payments that your underlying investments will provide.’

He says another option is to ‘utilise other assets in the medium term while markets recover, particularly in something like a cash Isa, to provide a form of compromise which allows individuals to pause or reduce their pension income withdrawals’.

Mr Greer concludes: ‘If you have cash savings or other assets you can afford to live off, which haven’t been affected by the stock market fall, then this might be the best option.’

You should also consider how withdrawing affects the income tax you’ll pay. You’re allowed to withdraw 25% of your pot tax-free and the rest is taxed as income when it’s withdrawn at your ‘highest marginal rate’ at that time.

This could mean you pay 20%, 40% or even 45% on such income if you’re a UK taxpayer or 21%, 41% or 46% if you’re a Scottish taxpayer.

Mr Cameron says: ‘Crucially, if you take out a large amount of your pension in a tax year – or even cash in the whole pot – this could push you into a higher tax bracket, resulting in you paying more tax than you would have if you’d taken smaller amounts out over a longer time period.’

Delay taking your pension, if you can

One thing you can consider is deferring your private pension.

A report by Legal & General claims one in six people over the age 50 and in work thinks that they will delay retirement by an average of three years because of the pandemic.

Some 15% aged over 50 and in work believe that they will delay, while 26% said they will have to keep working on a full or part-time basis indefinitely. The survey also found 10% could delay their plans by five years or more.

If you’re in a defined contribution scheme, delaying when you claim means that you leave it invested for longer, so you could have a bigger pension pot when you come to retire.

Deferring also means that you can continue to save as much as £40,000 a year into a pension and earn tax relief under current rules.

You can also defer your state pension for extra income.

Choosing to defer for five weeks or more means that, once you do start claiming your state pension, you’ll receive more than you otherwise would have.

It can also help you manage your tax liability if you don’t want to be pushed into a higher income bracket.

For example, if you receive £134.25 per week (the full basic state pension), you would get a 10.4% increase on this after 52 weeks, so you’ll get £148.30 a week instead.

The pension freedoms

Under current rules, you can withdraw your private pension at the age of 55.

If you’re at this age and have lost your job due to coronavirus, try not to jump the gun and withdraw your pension if you weren’t previously planning on doing so.

You’re still entitled to government support such as Universal Credit. The Universal Credit standard allowance and working tax credit basic element will both be increased by £1,000 for the next 12 months.

Analysis by Hargreaves Lansdown shows pension savers over the age of 55 have cut back on the amount they’re withdrawing from their pot since the start of the pandemic.

The average withdrawal among its self-invested personal pension (Sipp) users fell by 6% in March compared with a year earlier, while the number of one-off lump sum payments from pensions dropped by 7%.

Mr Cameron says: ‘While defined contribution pensions now offer significant flexibility on what can be taken when, there can be many tax consequences both now and in future.

‘Pensions are designed to provide you with an income throughout your retirement and taking out more money than you need to, or starting sooner, will mean you have less to live off in future.’

‘Before coming to a decision it’s wise to consider all your options, and for this we recommend you seek personalised advice from a professional adviser.’

You can also look for guidance on the government’s Pension Wise website.

Find out more: how much do I need to retire?

How you can keep your investments safe

If you’re an investor, you should use the coronavirus pandemic as an excuse to review your portfolio.

It’s crucial to manage the risks you’re exposed to, to avoid suffering agonising losses to your capital.

Here are some things you can do to help protect your savings.

Diversify your portfolio

The key is to build a diverse portfolio with a mix of different investments that suit your attitude to risk.

A balanced investment portfolio will contain a mix of equities (shares in companies), government and corporate bonds (loans to governments/companies), property and cash.

These investments hold different degrees of risk.

Bonds, for instance, are generally a much lower risk because there is greater certainty of returns, which can be fixed (although the returns are generally lower, too).

Equities are riskier because the market is more volatile, but the returns can be much higher than bonds.

However, beware of over-diversification – holding too many assets might be more detrimental to your portfolio than good as you’ll have too much of a small proportion of your money in different investments to see much in the way of positive results.

We’ve created some example portfolios, which illustrate the levels of risk associated with each type of asset.

These portfolios don’t constitute financial advice, but can act as a helpful starting point for a conversation with a financial adviser.

Don’t panic trade

Generally speaking, dumping your investments in a period of uncertainty like this will do more harm than good.

This is because panic selling your investments often locks in losses and you could miss out on any recovery. Jumping back into the market isn’t easy, either.

Mr Selby says: ‘It’s really important to not overtrade.

‘It’s not practical and it would be expensive to switch a big percentage of a portfolio around. If the outbreak is contained quickly you could miss a rally, costing you even more.’

There is a similar opinion among other investment firms.

Rupert Thompson, Kingswood chief investment officer, says: ‘We remain very much of the opinion that unless you have a very short-term horizon or are particularly risk-averse, you should not now sell equities.

‘While a global recession is now possible, we believe it should be a relatively short-lived affair and that economic activity should recover again in the second half of the year. If so, markets should also recapture much of their recent losses later this year.’

Mr Raymond adds: ‘It’s obviously unnerving to see the value of your portfolio suddenly drop. However, if you move to cash you run the risk of selling at exactly the wrong time. Regular corrections are the “price” investors pay for good returns over the long term.’

Can you predict stock market movements?

It’s impossible to fully predict how the market will behave, especially over a short time.

Past performance can be a helpful metric when choosing investments, but it’s no indication of future performance and shouldn’t be the only aspect an investor considers.

There will always be risks associated with investing in the stock market. Beyond the assets themselves, other risks you should be aware of include:

  • Inflation risk The threat of rising prices eroding the buying power of your money
  • Specific risk If you invest in individual companies or shares, there’s always a chance that unforeseen events will scupper your portfolio
  • Currency risk You’ll face this risk if your money is invested in stock markets outside the UK
  • Manager risk Some fund managers may consistently beat their benchmarks, but there’s a huge variation in the investment performance of individual managers.

For help and tips about the world of investing, see our comprehensive guide.

Which? advice on coronavirus

Experts from across Which? have put together the advice you need to stay safe and make sure you’re not left out of pocket.

You can keep up to date with our latest coronavirus news and advice.

This story was originally published on 4 March and is being updated regularly. The last update was on 16 October.


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