The COVID-19 lockdown has prompted many to look for ways of using their extra spare time as productively as possible. For some, this includes reviewing their financial plan.
We should always keep a close eye on our finances. It’s even more critical now that the fiscal effects of the COVID-19 crisis become apparent. Stock markets have suffered record losses, interest rates are at historic lows, and the property market is looking decidedly ‘bubble-like’. However, we may have more money than we previously thought. More on this later, and I’m not suggesting turning the sofa inside out, or looking under the bed!
What, therefore, can we do to protect ourselves from the worst effects of the crisis and ensure our financial plan is robust and flexible going forward?
The checklist below highlights four areas for attention:
Despite most portfolios suffering losses recently, now is not the time to panic. Stock markets have always recovered in the past. Although it may take a while, the global economy will adapt, and we’ll be back to business as usual.
In the meantime, I expect the economy to reset as we all get used to different ways of working. More people will continue to work remotely, and the 9 to 5 office culture will change. All this means investment fund managers will seek to find value in the ‘new normal’ economy. Technology companies should thrive, whereas Airlines and Hospitality chains are likely to suffer.
- Tax planning
Governments all over the world have been propping up their countries with seemingly endless borrowing and support. It can’t go on indefinitely; every country is going to have to refill the coffers as soon as they can. Tax increases are inevitable.
All financial products are subject to tax according to their underlying structure, where they are based and how we invest. Similarly, individuals are liable to the tax rules which apply to their country of residence. For example, a financial product which is tax-efficient for an investor living in one country, might not be as effective if that person becomes tax resident elsewhere. ISAs are an obvious example for UK Expats. These investments are highly tax-efficient for the holder as they accumulate, but not so if/when the individual decides to emigrate.
Pensions come in a variety of shapes and sizes. Some are based on a multiple of ‘final salary’, others solely on a fund value.
As obvious as it sounds, the first thing to check is who/which company administers your pensions. As we change jobs during our working life, we often forget about our ‘old pensions’. Once we know what and where they are, we should think about whether it would be better to consolidate all of our schemes into one to make it easier to administer.
Having established what pensions we have, the next step is to calculate the value. Online calculators allow you to project how much you need to retire, how much you can withdraw after retirement and how long your money will last.
Next, we have to dig into the detail. If we have a final salary pension scheme, we need to examine the robustness of the scheme sponsor. Even major companies are feeling the strain of the lockdown. For Expats, the currency of benefit payment might be more significant now than it was a few months ago as we see increased volatility in forex markets. Maybe now is the time to restructure the currency spread within our pensions.
The COVID-19 crisis has been a tragedy for many families, taking lives and creating long-term health problems for many. Hopefully, we’ll be through this particularly awful period sooner, rather than later. Unfortunately, everything we are hearing from the scientists suggests that COVID won’t be the last pandemic we will witness. Checking our pension ‘death benefits’ is a must.
- Take professional advice on your financial plan
Last, but by no means least, talk to your financial adviser. In times like these, it’s advisable to review and evaluate your position with a professional. Your adviser will have the necessary knowledge and experience to help you navigate these choppy waters.
Finally, where might we find ‘money’ we didn’t know we have? A recent study estimated that there is some £19,000,000,000 in ‘unclaimed pensions’ in the UK. One of the reasons for this is that a lot of people forget to inform their pension company when they move house. Think about the companies you have worked for and any pensions you may be entitled to. Your adviser can help!