Retirement Imminent - impact of coronavirus on your plans

Thrugelmir

Deleted_User said:

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. 

Closed schemes remain a liability. They started closing over 20 years ago. One of mine has been in continual shortfall ever since. With the company being required to contribute additional funding every year in an attempt to bridge the gap. 

Thrugelmir

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. 

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.

The "market" is not the real econony. Traders buy and sell indexes, investors buy and sell shares. 

dunstonh

The claim that most people are back to where they were before the crash is not true.

It's not what we are finding.   Most of those we deal with are either back in surplus or getting very close to being so.  However, it is perhaps worth noting that advised clients tend to be invested at lower risk levels than DIY investors.    

We did a check on the position last week as quarterly statements were being generated which show 5th January, 5th May and current and found on our 1-5 scale, risk 4 was the worst position with a drop of just over 5% on 5th Jan.  Risk 1 was in profit, risk 2 breakeven, risk 3 a couple percent down.  Risk 5 was only a couple of percent down.   5th Jan was not the top of the market (around 23rd Feb was).  However, it was just that we had that date from the previous statements and for many that was the last value they saw.

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

Although most markets fell by over 40% in both the credit crunch and the dot.com period.  So, the recent drop is only third largest drop in the last 20 years.

[Deleted User]

Thrugelmir said:

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. 

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.

The "market" is not the real econony. Traders buy and sell indexes, investors buy and sell shares. 

You can call people whatever you like but your definitions don’t align with the dictionary. 

The thing about indices... They reflect average performance of everyone who buys stocks in whatever form. Except the actual investors have additional costs and taxes. 

[Deleted User]

Thrugelmir said:

Deleted_User said:

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. 

Closed schemes remain a liability. They started closing over 20 years ago. One of mine has been in continual shortfall ever since. With the company being required to contribute additional funding every year in an attempt to bridge the gap. 

Thats true but only for the “old” industries. 

[Deleted User]

dunstonh said:

The claim that most people are back to where they were before the crash is not true.

It's not what we are finding.   Most of those we deal with are either back in surplus or getting very close to being so.  However, it is perhaps worth noting that advised clients tend to be invested at lower risk levels than DIY investors.    

We did a check on the position last week as quarterly statements were being generated which show 5th January, 5th May and current and found on our 1-5 scale, risk 4 was the worst position with a drop of just over 5% on 5th Jan.  Risk 1 was in profit, risk 2 breakeven, risk 3 a couple percent down.  Risk 5 was only a couple of percent down.   5th Jan was not the top of the market (around 23rd Feb was).  However, it was just that we had that date from the previous statements and for many that was the last value they saw.

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

Although most markets fell by over 40% in both the credit crunch and the dot.com period.  So, the recent drop is only third largest drop in the last 20 years.

Quite right. 5th Jan was not the top of the market.  So you are comparing apples and oranges. And like I say, GBP dropping makes your clients’ statements look better than VTSMX which is counted in USD, even if you were to pick the same dates. Most DIY investors will have outperformed VTSMX because almost everyone has bonds, particularly people approaching retirement. 

You really cant draw any conclusions about “advised” vs “DIY” based on what your clients’ statements are showing for Jan 5th and May 5th.  

On a sidenote... In your case its just luck but strategic picking of dates when advertising fund performance is very naughty. Maximum portfolio drawdown would be quite informative for many people. 

And the uniqueness of this drawdown was its speed rather than amplitude.
Last but not least... Active funds in the UK seem to be very fond of real estate. Not at all sure the value they show is real.  Hasn’t RL banned new withdrawals? Maybe not RL; but I saw something like that. Not  cool. 

mark55man

My experience as a non advised, higher risk, non-client at least 5 years from retirement matches that related by dunstonh. 

In my case both gold and long term / index linked bond funds played a significant part in balancing/recovery.  I am grateful to all the material I have read on here over the years, as it was not easy to change my thinking a few years ago from 100% equities to a more balanced allocation.  Within the last few days I have top sliced my gold assets which had risen to 20% of my portfolio and recycled them into funds that had been worst affected

That said the balancing wasn't smooth, my equity portion lost harder and faster than the protective assets recovered, but again reflecting lessons from this forum I didn't panic.  I am now I about level (total fund value, Friday valuation) where I would have been had I tracked my (10 year) average return of just over 8%, and feel that if anything I am better placed going forward than before.

In terms of the main thread topic - the period of the lockdown matched the single busiest period I have had professionally for a decade, so I largely worked from home long days - so my plans weren't impacted, although OH and I had to work out an arrangement to avoid clashing each others work.  I won't say I prefer this to the office, but have definitely changed perspective about how it is possibly for individuals and teams of people to be productive  away from the office  

green_man

 green_man said:

I am due to start drawdown Next Feb. Main fund is down around £100k, I am expecting that this may go lower as it looks like the market Is being a tad optimistic IMO. However I will stick to my main plan.  My fund has about 3 years of expenditure in cash, in hindsight it would be
  nice it that had been higher.

Further to the above.  I am not one for panicking, however I have taken advantage of the recent relative recovery to increase my cash balance in the part of my portfolio that I will be transferring to a drawdown provider.  I will now have about 5 years of cash, though two years worth of that will be drawn next year in the March/April period (taking advantage of personal allowances).   

Had the recovery not happened I wouldn’t have done this, but to be honest I’m a bit flummoxed  by the current high market levels and I suspect once we get companies reporting results taking account of Covid we could still be in for a rough ride.

Audaxer

dunstonh said:

The claim that most people are back to where they were before the crash is not true.

It's not what we are finding.   Most of those we deal with are either back in surplus or getting very close to being so.  However, it is perhaps worth noting that advised clients tend to be invested at lower risk levels than DIY investors.    

We did a check on the position last week as quarterly statements were being generated which show 5th January, 5th May and current and found on our 1-5 scale, risk 4 was the worst position with a drop of just over 5% on 5th Jan.  Risk 1 was in profit, risk 2 breakeven, risk 3 a couple percent down.  Risk 5 was only a couple of percent down.   5th Jan was not the top of the market (around 23rd Feb was).  

That's impressive over that period. I've just had a look at the performance of the VLS funds from 5th Jan this year to 5th May, and only the VLS20 was back to a breakeven position. I didn't think VLS40 and VLS60 had done too badly compared to most active funds but some active funds must have held up really well to get to near enough a breakeven position.

DairyQueen

michaels 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.

Uncertainty over the funding of OH's DB scheme has been the main reason we decided to put OH's pension into payment in April this year.

It's a private sector scheme and has been closed to new entrants since the noughties. In the five years prior to OH reaching scheme NRA (age 62 in April 2019), the projected value (inc late retirement factor) at age 65 - OH's then preferred retirement age - decreased incrementally by a total of 14%. The annual valuation this year reported that the late retirement factor had been decreased by one percent, and that the lower factor had been retrospectively applied to April last year.

The valuation was calculated and sent prior to coronavirus hitting so lord knows what kind of reduction to the late retirement factor will be applied going forward.

The company is in the aerospace industry so may be a contender for government support (Project Birch) but we are not placing bets.

OH will now receive 100% protection if the scheme ends-up in the PPF. A bird in the hand... etc., etc.