Terrifying Covid variant to destroy stock market – is YOUR pension safe?

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Omicron variant 'could travel around the world' says Fauci

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Last Friday, we had a taste of what Omicron can do to stock markets. Airline, leisure, entertainment and energy stocks collapsed as investors feared another wave of lockdowns. Indices plunged more than 3% in a day, the biggest drop of the year. It may only be the start.

Falling stock markets spell disaster for anybody with money a pension or tax-free stocks and shares Isa. 

They could see the value of their retirement savings fall by thousand pounds in a few hours. Those with larger savings portfolios could lose a lot more.

This is a real worry for millions, and here’s why.

Until recently, most pensioners could afford to shrug off a stock market crash. That’s because they were obliged to buy an annuity with their pension, which paid a guaranteed income for life no matter what happened to share prices.

That’s not the case today.

Following 2015’s pension freedom reforms, the vast majority of retirees snub annuities and leave their pension invested in stocks and shares, drawing down income as required.

This means they benefit from rising share prices, but at a price.

If stock markets crash, so will the value of their pension pot. This leaves less money to draw down in future and there is another danger.

History shows stock markets usually recover after a stock market crash. However, any money pensioners withdraw to fund their everyday spending will not benefit from the rebound. It will have already been spent.

Their savings will have been depleted for good.

Despite the danger, pensioners need to keep a cool head and here’s why.

First, we don’t yet know how bad the Omicron variant is going to be. While it looks highly transmissible, early reports suggest the symptoms aren’t as severe.

If it becomes the dominant form of Covid but is less lethal, this may be a signal that coronavirus is weakening and the crisis is finally coming to an end.

Stock markets will skyrocket if that happens. We could see the biggest relief rally of all time. Pension values will soar with it.

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The stakes couldn’t be higher. So how should pensioners respond?

Most should resist the temptation to panic and pull all their pension funds out of the market right now (unless they urgently need the money). It is impossible to second-guess short-term market movements and trying to do so usually backfires.

Share prices could crash. They could soar. Nobody can say for sure (and never believe anybody who says they can).

The best way to protect against market swings is to build a balanced savings pot with a blend of shares, cash, bonds and maybe a bit of gold. That way if shares crash then cash and gold could limit the overall damage.

Never put money into shares that may be needed in the next five years. Always invest for the long-term. That should give your pension plenty of time to recover, even if the Omicron crash is the big one.

We’ll soon find out.

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