Small pension pot losing money and I am tempted to take it all

immy1

Hi

I know there are lots of posts regarding private pensions losing money in the current climate but I am over retirement age now and I feel that  I do not have the leisure to wait for years for values to return to normal.   The pot is currently worth just over £10k and has reduced from about £12k last December.   I have had a look on HMRC and it seems that I may be able to take the full lump sum with 25% tax free and the rest taxed at 20%.  I would be interested to hear the opinions of anyone in a similar situation to myself in age who is considering doing the same thing?

dunstonh

I know there are lots of posts regarding private pensions losing money in the current climate but I am over retirement age now and I feel that  I do not have the leisure to wait for years for values to return to normal. 

Values are up around 5% in the last week.  The majority of crashes recover within a year.  The extreme ones tend to take up to 3 years.   The rare ones may take up to 5 years.

 I would be interested to hear the opinions of anyone in a similar situation to myself in age who is considering doing the same thing?

You haven't given your age or what your intention is to do with the money.  If you are just going to take it out and put it in a savings account then that would be wasteful.

What did you decide to do in 2020 when values fell by more than the recent falls?   Or 2018 or 2015/16 when values fell by about the same amount?     It appears you left it and they bounced back again (as historically they always have).

If your plan is to spend the money now then that is a different scenario.

immy1

Hi dunstonh and thanks for the reply.  I am aged 67 and I know that usually funds can recover within a year or so but this current situation feels diiferent somehow with the all the issues in the economy at the moment.  Savings rates are up a tiny bit if you shop around so I was actually thinking of taking the full amount and putting it into a savings account rather that watch it reduce to nothing. Even though it's a small pot it is a large sum to me.

[Deleted User]

“This time is different” is a bit of a joke.  It always feels different.

Given that the real rate of return on savings accounts is negative (-5% per year?), your proposed strategy would still reduce investments to nothing over time.  

One assumes this is not the only money you have.  What you need is to make sure that you are diversified in terms of your overall assets.  So you need to look at the totality of your income and assets and then decide what should be done with a portion you talk about.

Usually bear markets are a bad choice of time to reduce risk.  

immy1

Depends Mordko on how the individual feels and how things are going to pan out over time. It's anyone's guess I suppose. I am not saying savings rates haven't declined rapidly but due to my age I am thinking that it is better to be able to have something to put into a savings account than have nothing to invest or withdraw at all.  If I was younger then I would just leave it but I feel in a dilemma at the moment about what to do.

dunstonh

I know that usually funds can recover within a year or so but this current situation feels diiferent somehow with the all the issues in the economy at the moment.

It actually feels more like the historical norm.  e.g. boom/bust, higher inflation, higher interest rates, a war going on and businesses repatriating supply lines.  The last 20 or so years are the anomaly in terms of the historical norm.

There is nothing going on at the moment which is of major concern to the markets which is why they haven't fallen that much.   Concerns yes (and that is already priced in)  Panic no.  Certain areas of the US have fallen heavily but they grew massively in the years before and have returned to the long-term average.

Albermarle

immy1 said:

Depends Mordko on how the individual feels and how things are going to pan out over time. It's anyone's guess I suppose. I am not saying savings rates haven't declined rapidly but due to my age I am thinking that it is better to be able to have something to put into a savings account than have nothing to invest or withdraw at all.  If I was younger then I would just leave it but I feel in a dilemma at the moment about what to do.

Unless you are invested in something very exotic, the chances of a mainstream investment fund dropping to zero is also about zero. 
If your pot has dropped by 20% then that is within the normal range. My guess is that if you compared it to this time 12 months ago, it will be pretty much the same and compared to 5 years ago it will be up. 

To answer part of your original question, if you do withdraw it then 25% will be tax free and the remaining 75% is taxable. Whether you pay any tax, or how much will depend on what other taxable income you have.
You have a personal tax allowance of £12570 normally before you pay any tax but note that the state pension is classed as taxable income. In any case the provider probably will tax all of it and then you can claim back any overpaid tax later. 

immy1

Thanks for all your advice folks. Much appreciated.

Sunnylifeover50plan

In fairness @2nd_time_buyer @dunstonh does have a comprehensive disclaimer at the base of all of his/ her posts.

Life is often enriched by ideas and options - it's up-to the individual if they investigate further.

2nd_time_buyer

Sunnylifeover50plan said:

In fairness @2nd_time_buyer @dunstonh does have a comprehensive disclaimer at the base of all of his/ her posts.

Life is often enriched by ideas and options - it's up-to the individual if they investigate further.

Apologies, I have deleted my post. It was out of order.