Retirement Imminent - impact of coronavirus on your plans

robrit61

When our investments took a hit in March we stopped taking an income and have green relying on my DB scheme and our cash savings which were there for such an eventuality. We've clawed quite a lot (not all) of the losses back now and I note that total investments are more than they were a year ago. Certainly more than we would've had if it had been in cash. I think we will hold fire on taking an income from our investments for a few more months and then see how things are. 

Thrugelmir

MarkCarnage said:

Possibly not the thread but how confident are people that all these glorious DB pensions actually have sufficient asset backing to meet the promised payouts given the countries productive potential is lower going forward so a DB basically means a claim on a bigger share of what is now a smaller pot.

I'm completely confident that there will be some DB pension schemes who don't have sufficient asset backing. But I was completely confident of that before COVID. I am pretty confident that they will be in a smallish minority though. I would also take issue with an assumption that productive potential globally is lower on a permanent basis. 

I am also completely confident that if one ran a solvency based, or even technical provisions based valuation of schemes now, it would look pretty bad in some cases. However, the discount rates being used are probably unrealistic. Many big schemes are now largely hedged against adverse interest rate and inflation moves too. 

I also think that if inflation does rise, possibly significantly, in the medium term, then the real value of liabilities is going to fall. It looks like longevity assumptions were beginning to plateau pre COVID too, and difficult to see them rising in the short term. 

For quoted companies, the emphasis will be on the funding of DB scheme liabilities and not on remunerating shareholders via dividends/share buybacks. The cake can only be cut so many ways. Lower investment returns are the obvious consequence. 

itwasntme001

Thrugelmir said:

MarkCarnage said:

Possibly not the thread but how confident are people that all these glorious DB pensions actually have sufficient asset backing to meet the promised payouts given the countries productive potential is lower going forward so a DB basically means a claim on a bigger share of what is now a smaller pot.

I'm completely confident that there will be some DB pension schemes who don't have sufficient asset backing. But I was completely confident of that before COVID. I am pretty confident that they will be in a smallish minority though. I would also take issue with an assumption that productive potential globally is lower on a permanent basis. 

I am also completely confident that if one ran a solvency based, or even technical provisions based valuation of schemes now, it would look pretty bad in some cases. However, the discount rates being used are probably unrealistic. Many big schemes are now largely hedged against adverse interest rate and inflation moves too. 

I also think that if inflation does rise, possibly significantly, in the medium term, then the real value of liabilities is going to fall. It looks like longevity assumptions were beginning to plateau pre COVID too, and difficult to see them rising in the short term. 

For quoted companies, the emphasis will be on the funding of DB scheme liabilities and not on remunerating shareholders via dividends/share buybacks. The cake can only be cut so many ways. Lower investment returns are the obvious consequence. 

This is a great point Thrugelmir.  I understand that pension liabilities are independently valued and accounted for on the balance sheets of quoted companies so should it not be reflected in their share price?  Of course these liabilities can get worse if say for example interest rates continue to fall even further.  I wonder if that is also another reason why value stocks have underperformed growth stocks - because value stocks are much more likely to be older (and thus had offered db pensions) than their growth counterparts?  Very interesting area for discussion and research.

itwasntme001

MarkCarnage said:

Possibly not the thread but how confident are people that all these glorious DB pensions actually have sufficient asset backing to meet the promised payouts given the countries productive potential is lower going forward so a DB basically means a claim on a bigger share of what is now a smaller pot.

I'm completely confident that there will be some DB pension schemes who don't have sufficient asset backing. But I was completely confident of that before COVID. I am pretty confident that they will be in a smallish minority though. I would also take issue with an assumption that productive potential globally is lower on a permanent basis. 

I am also completely confident that if one ran a solvency based, or even technical provisions based valuation of schemes now, it would look pretty bad in some cases. However, the discount rates being used are probably unrealistic. Many big schemes are now largely hedged against adverse interest rate and inflation moves too. 

I also think that if inflation does rise, possibly significantly, in the medium term, then the real value of liabilities is going to fall. It looks like longevity assumptions were beginning to plateau pre COVID too, and difficult to see them rising in the short term. 

If inflation rises then the real value of liabilities will rise all else equal (i.e. real interest rates fall).  Liabilities are inflation linked.

itwasntme001

The big problem for pension funds (alongside the fall in real linterest rates) has been the complete lack of liquid market (for regulatory purposes as well as practical) for assets linked to inflation and that reinvestment risk in these assets is low (unlike index linked bonds).

[Deleted User]

Thrugelmir said:

MarkCarnage said:

Possibly not the thread but how confident are people that all these glorious DB pensions actually have sufficient asset backing to meet the promised payouts given the countries productive potential is lower going forward so a DB basically means a claim on a bigger share of what is now a smaller pot.

I'm completely confident that there will be some DB pension schemes who don't have sufficient asset backing. But I was completely confident of that before COVID. I am pretty confident that they will be in a smallish minority though. I would also take issue with an assumption that productive potential globally is lower on a permanent basis. 

I am also completely confident that if one ran a solvency based, or even technical provisions based valuation of schemes now, it would look pretty bad in some cases. However, the discount rates being used are probably unrealistic. Many big schemes are now largely hedged against adverse interest rate and inflation moves too. 

I also think that if inflation does rise, possibly significantly, in the medium term, then the real value of liabilities is going to fall. It looks like longevity assumptions were beginning to plateau pre COVID too, and difficult to see them rising in the short term. 

For quoted companies, the emphasis will be on the funding of DB scheme liabilities and not on remunerating shareholders via dividends/share buybacks. The cake can only be cut so many ways. Lower investment returns are the obvious consequence. 

The majority don’t have DB schemes. And those that do will be hit big time. Apart from stock market losses, low interest rates mean massive funding shortfalls. 

[Deleted User]

dunstonh said:

In reality, it shouldn't really impact on the decision to retire if you are looking at investment values.   Most people are going to be either back above what they were before the crash or getting very close to being so.    As crashes are part and parcel of investing, your retirement plans should see you invested within your risk tolerance and your capacity for loss.    You are probably looking at another 3-7 loss periods similar to this in the remainder of your lifetime.   They should be factored into your future planning.  So, this shouldn't have had an impact unless you were invested outside of your risk tolerance/capacity for loss or you were invested poorly (e.g. 100% in a FTSE100 tracker).   Or your plans were pushing limits based on past performance over a growth period and failed to take into account the negative periods that would occur.     

What it may do is accelerate some people towards retiring earlier.  Either forced to due to employment issues or by choice as they are in a position to be able to retire without the need to work and life being too short want to live it whilst they can.   

Equally, I was speaking to someone earlier in the week who has decided to extend his working life as he was bored stiff over lockdown and he enjoys his work. 

The world stock market (VTSMX ETF) fell by a third within a months. Thats a rare event; certainly the fastest drop on my memory. 

Since March 25th, it has recovered just over half its losses but is still ~15% below peak. Balanced fund holders will have experienced milder losses, but they are still in the red. GBP has been weak which gives a perception of “its not that bad” to those counting in pounds,  but sooner or later the weak pound will translate to higher prices and impact retirees. 
The claim that most people are back to where they were before the crash is not true.
Nor is this over just yet. Uncertainty is very high and hence the impact is not known. 

The world stocks are ever so slightly in the positive territory compared to this time last year. That part is true.

cfw1994

Deleted_User said:

dunstonh said:

In reality, it shouldn't really impact on the decision to retire if you are looking at investment values.   Most people are going to be either back above what they were before the crash or getting very close to being so.    As crashes are part and parcel of investing, your retirement plans should see you invested within your risk tolerance and your capacity for loss.    You are probably looking at another 3-7 loss periods similar to this in the remainder of your lifetime.   They should be factored into your future planning.  So, this shouldn't have had an impact unless you were invested outside of your risk tolerance/capacity for loss or you were invested poorly (e.g. 100% in a FTSE100 tracker).   Or your plans were pushing limits based on past performance over a growth period and failed to take into account the negative periods that would occur.     

What it may do is accelerate some people towards retiring earlier.  Either forced to due to employment issues or by choice as they are in a position to be able to retire without the need to work and life being too short want to live it whilst they can.   

Equally, I was speaking to someone earlier in the week who has decided to extend his working life as he was bored stiff over lockdown and he enjoys his work. 

The world stock market (VTSMX ETF) fell by a third within a months. Thats a rare event; certainly the fastest drop on my memory. 

Since March 25th, it has recovered just over half its losses but is still ~15% below peak. Balanced fund holders will have experienced milder losses, but they are still in the red. GBP has been weak which gives a perception of “its not that bad” to those counting in pounds,  but sooner or later the weak pound will translate to higher prices and impact retirees. 
The claim that most people are back to where they were before the crash is not true.
Nor is this over just yet. Uncertainty is very high and hence the impact is not known. 

The world stocks are ever so slightly in the positive territory compared to this time last year. That part is true.

Deleted_User said:

dunstonh said:

In reality, it shouldn't really impact on the decision to retire if you are looking at investment values.   Most people are going to be either back above what they were before the crash or getting very close to being so.    As crashes are part and parcel of investing, your retirement plans should see you invested within your risk tolerance and your capacity for loss.    You are probably looking at another 3-7 loss periods similar to this in the remainder of your lifetime.   They should be factored into your future planning.  So, this shouldn't have had an impact unless you were invested outside of your risk tolerance/capacity for loss or you were invested poorly (e.g. 100% in a FTSE100 tracker).   Or your plans were pushing limits based on past performance over a growth period and failed to take into account the negative periods that would occur.     

What it may do is accelerate some people towards retiring earlier.  Either forced to due to employment issues or by choice as they are in a position to be able to retire without the need to work and life being too short want to live it whilst they can.   

Equally, I was speaking to someone earlier in the week who has decided to extend his working life as he was bored stiff over lockdown and he enjoys his work. 

The world stock market (VTSMX ETF) fell by a third within a months. Thats a rare event; certainly the fastest drop on my memory. 

Since March 25th, it has recovered just over half its losses but is still ~15% below peak. Balanced fund holders will have experienced milder losses, but they are still in the red. GBP has been weak which gives a perception of “its not that bad” to those counting in pounds,  but sooner or later the weak pound will translate to higher prices and impact retirees. 
The claim that most people are back to where they were before the crash is not true.
Nor is this over just yet. Uncertainty is very high and hence the impact is not known. 

The world stocks are ever so slightly in the positive territory compared to this time last year. That part is true.

I think the bit about “ In reality, it shouldn't really impact on the decision to retire if you are looking at investment values“ is also true.
Clearly everyone will be different, and attitudes to the situation vary from “we’re all doomed” to “this could be a buying opportunity”.  

Pension pots will vary too: mine is back to within a whisker of it’s peak of Feb 21st.  Could drop back again, but I can only say things as I see them.  Perhaps your assertion that the “claim that most people are back to where they were before the crash is not true“.....is also not true?

I firmly agree that this ain’t over by a long shot, and things could get significantly worse.....

....but I, perhaps like most investors, am an optimist.....I see potential for much good to come from this pandemic (appreciation of NHS, key workers, less reliance on yet more tat - & be aware that I speak as someone who loves tech and has far too much tat in my life ).   We now know neighbours on our street who we’ve never even nodded at.  Much more of a community feel about the place.

Sure, Rishi and those managing the finances have a massive job akin to that following WWII, and that will mean more taxation, perhaps some higher costs etc.....but perhaps more jobs to do that.

Time will tell where we are.  20:20 hindsight is a marvellous thing!

cfw1994

(no idea why that quote was quoted twice: sorry!  iPad editing on the new layout of forum is a flippin’ nightmare!)

georgehere

This incident has really made me think hard about risks and what kind of set up I will need to manage my money through retirement. I am a great example of 'a little knowledge is a dangerous thing' and thought I had it all worked out with a plan to stop working in 2 years (58 now). Turns out I didn't really have plan at all, just a notion of managing my money in a SIPP/drawdown. I got pulled into the interesting areas of safe withdrawal rates and spend a lot of time playing with spreadsheets.
I now realise that I was starting from the wrong point entirely and for me, the first thing I needed to work through was to identify the key risks for me, decide how I felt about them, then let that be my starting point. So, thanks to CV19, I realise that actually, I don't have a plan, but I have at least figured out how to put a plan together and have started at the start line this time, rather than starting from the finish line.