What is the impact of COVID-19 on my defined contribution pension pot?

Last updated: 25 Nov 2020

If you’re currently paying into a workplace defined contribution pension scheme and have several years before you are planning to draw on your pension, then you are less likely to be affected. In time, it is likely that markets will recover and so will the value of your pension pot. It might even be a good time to consider increasing your pension contributions if you can.

If you are close to or considering retirement, your pension scheme may well operate ‘lifestyling’ to your investments. This means your pension investments will be or have been moved into predominantly less risky funds such as cash, gilts or bonds as you are approaching (or have already reached) retirement age.

This doesn’t mean your pension won’t be affected, but it should be considerably less than if you had remained invested mainly in shares. However not all pension schemes automatically implement lifestyling so you may want to check what type of funds your pension is invested in.

If your pension is still invested mostly in shares, it is important not to panic. Over time, it is likely markets will recover.  Depending on when you are planning to retire, you may have to consider taking a lower income or retiring later because of how your pension has been impacted by coronavirus. This is partly due to the reduction of interest rates which will alter the amount of pension that you are likely to receive from an annuity.

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