The top aspect of anyone’s financial affairs that comes under scrutiny when times get difficult is anything that we can put off paying to another day, and for many people that is the contribution they make into a pension scheme. However that is usually a mistake for a number of reasons, but it does depend upon your reasons for not wanting to make those contributions.
If you have lost your job you may feel that you simply cannot afford your contributions and clearly if it is a matter of eating, or paying the rent, or contributing to your pension, then it is difficult to argue against deferring any provision for when you retire at some time in the future to another day.
However, your concern may be the fall in the value of investments in the fund you have already accumulated, and most of us now have defined contribution schemes which invest in global financial markets to build up a capital sum that will be used to generate an income in retirement. Most investments can fall in value from time to time and, whilst it may reduce the value of existing investments, markets have always recovered and this should be seen as a real opportunity to buy investments at a discount to their longer term value.
An important factor here is the concept of price averaging. Because investment values always fluctuate, we can never be sure that we can buy at the lowest price and by continuing to invest on a monthly basis we average out the price at which we purchase the investment. Buying investments when markets are depressed helps us average down the price we pay for the total fund we have accumulated by retirement age as historically markets have always recovered.
One further consideration is that we make pension contributions over a very long period and the concept of compound interest means that by earning returns on previous returns, you achieve a greater return the longer you can maintain the contributions. For example, if you delay making pension contributions for 5 years you could need to double your contributions for your remaining years to retirement to have the same size of fund to provide your income when you stop working.
It is therefore beneficial to continue to make your pension contributions, and possibly even increase them if you can afford to do so, at times when the stock market values have fallen.
For any help, advice or simply to discuss your concerns our advisers here at Birchwood are available Monday-Friday to talk things through.