Savers looking to alter their pensions strategy might benefit more from remaining invested and awaiting market recovery, according to the Pensions Policy Institute (PPI).

A PPI report warned that withdrawing or disinvesting pension savings at a time when the market is experiencing such deep reductions could result in an overall loss in fund value, while it also cautioned that reinvesting in order to make back lost savings carried its own risks.

The report said: “Any member wishing to change investments would benefit from financial guidance or advice, and the best solution for some will be to remain invested until the market recovers in order to avoid losses arising from ‘selling low and buying high’.”

Over the first three months of the year most global stock markets registered major declines, with London’s FTSE 100 and FTSE 250 falling by 25 per cent and 31 per cent respectively.

However, PPI analysis suggested that pension funds appear to have fared better than the stock market because funds are diversified and hold more stable assets, with the value of Nest members’ investments having fallen by 17.6 per cent in the first quarter, while members who are close to retirement lost only 0.6 per cent.

Members are also urged to avoid transfers, not just because they could receive lower transfer values or fall victim to scams, but also because of the strain this could place on schemes’ administrative functions and funding positions.

The briefing note also pointed out that individuals and employers are both more likely to find it difficult to sustain contribution levels amid the coronavirus crisis, and automatic enrolment opt out rates could increase as people struggle to deal with loss of income.

The report noted that younger workers are at greater risk of experiencing unemployment or negative wage impacts as they are two and a half times more likely to work in sectors that have been shut down than other age groups, though their pension pots have more time to recover.

Towards the end of March, 69 per cent of workers under the age of 30 reported working fewer hours than usual in the last week and 58 per cent reported earning less, compared to 49 per cent and 36 per cent of workers aged 40-55 respectively.

The PPI also suggested that those approaching retirement with defined contribution pensions might benefit from delaying accessing their pot or making additional contributions, while those in retirement might consider stopping or cutting withdrawals in order to allow their pot more recovery time.

The report stated: “Drawdown users who choose to withdraw a specified amount each year (e.g. £2,000 each year) are likely to exhaust their pension pot more quickly if they continue to withdraw at the same level from their pot which is currently reduced in value due to stock market declines.

“Those who withdraw a specified proportion of their pot each year (e.g. 4 per cent) may be able to continue to withdraw at the same rate, taking into consideration the lower value of their pot at present. However, retirees’ ability to reduce withdrawals is dependent on income needs and may be more difficult for pensioners on lower incomes for whom disposable income is lower.”

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