Caution urged on pension withdrawals post-Brexit

Caution urged on pension withdrawals post-Brexit

Advisers have been told to encourage their clients to think twice about taking cash from their pension pots in the immediate aftermath of the UK’s decision to exit the European Union.

Andy James, head of retirement planning at Towry, said market turbulence is not helpful when looking to take income from investments and certainly market falls in the short term can have a big effect on overall asset levels when combined with making withdrawals.

He said he would urge caution to those looking to make withdrawals at the present time and to consider whether now is the right time to be doing this.

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Mr James said now could be the time for investors to dip into a cash buffer, if they have one, and give time for things to settle down a bit.

He also said there is downward pressure on interest rates at present so annuity rates are potentially going to get even worse and certainly unlikely to improve any time soon.

Richard Parkin, head of pensions at Fidelity International, agreed with Mr James that advisers should encourage their at-retirement clients to consider whether they really need to take cash from their retirement investments now.

Mr Parkin said: “We sometimes see people taking cash from their pension savings at retirement just because they can.

“Many don’t realise that most pensions allow you to leave the money invested until you need it. If you do need cash now, taking smaller withdrawals over a longer time period will often be less risky than taking a large withdrawal all at once.

“If you are looking to convert your savings to guaranteed income by buying an annuity then it’s more important than ever that you shop around for the best deal.

“Annuity rates are based on long term interest rates which are already low and could be adversely affected by market uncertainty.”

But David Rae, head of client strategy and research for EMEA at Russell Investments, said at-retirement clients who remain invested in pensions need to be aware the amount of cash in their pots is likely to have plummeted post Brexit.

Mr Rae said occupational pension liabilities have probably increased by 8 per cent to 10 per cent, having a leveraged effect on funding levels.

In aggregate, Mr Rae said schemes could be looking at a 10 per cent hit to funding levels depending on the level of liability hedging.

He said: “Asset returns will have clearly been impacted by the falls in risk assets on a global basis.

“The gilt market is pricing in the heightened political and economic uncertainty as well as the possibility of further monetary policy stimulus. The equity market reaction has been less pronounced than the gilt market reflecting a view of further central bank intervention.”

Claire Trott, head of pensions technical at Talbot & Muir, said despite the hit taken by pension pots now is not the time to go and do anything rash especially with regards to retirement savings.