How Long Will Your Pension Take To Recover From The Crash?

Stock markets have seen a drop of almost a third in value since the start of the coronavirus pandemic – but how long will they take to recover?

The question is pressing if you are approaching retirement or have pension income based on fund value.

Some unfortunate over 50s savers may have just got back to where they were when the markets last crashed in the financial crisis a decade ago.

The good news is, despite the magnitude of the coronavirus crisis, markets are showing signs of recovery and experts expect things to get back to normal in double-quick time once the worst of the outbreak subsides.

However, millions with money invested in auto-enrolment, personal pensions and offshore Qualifying Recognised Overseas Pension Schemes (QROPS), these are worrying times.

Analysts Refinitiv Data looked at the last four crashes and found that as time goes by, market recovery takes longer.

Market crashes and recovery times

Year Crash duration (days) Market loss Days to recover
1987 117 36.6% 1,357
1998 122 24.1% 139
2000-03 1,167 50.9% 1,393
2007-09 617 48.6% 1,529

Source: Refinitiv Data

The message from the experts is don’t panic – selling shares to minimise losses is not a good strategy.

Investment hacks for pension savers

Selling crystallises losses and may mean you don’t have enough cash to re-enter the market as prices rise.

Many agree one of the best options is to drip feed more cash into a pension while the markets are low. This means buying more shares while the market is low. Think about the carry-forward rules if you have not exhausted your full allowances in the last tax year.

A good idea is keeping some of your pension fund in cash as a buffer. If the market stays low or you can’t take the cash, at least you have some ready money to pay the bills, but don’t take money out on the off chance you will need it.

Stashing cash in a bank account will pay much less interest than the returns of keeping money invested.

And then there’s the dreaded money purchase annual allowance (MPAA) that kicks in once a withdrawal is made from a pension that reduces the cap on annual contributions from £40,000 a year to a measly £4,000.

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