Thursday 30th April, 2020
The last few weeks have been worrying and uncertain for everyone, in particular the self-employed. First and foremost we hope that you and your loved ones are safe and healthy.
This is an unsettling time for everyone, but in particular for self-employed people who may be uncertain about the future of their income over the coming months. So we wanted to give our perspective on COVID-19 and its impact on the financial markets, so that hopefully you aren’t also worrying about your pension at this time.
Finally we wanted to reassure you that Penfold is doing well and here to help you for the long-term. As hard as it may seem it always helps at a time like this to view the current situation from a long-term perspective and with some optimism!
1. COVID-19 and its impact on the financial markets
As the virus began to spread outside of China and into the rest of the world, the travel restrictions and lockdowns caused major disruption to global economic activity. This uncertainty decreased demand on an aggregate level, and caused the price of assets, goods and services in the economy to drop. Therefore, the value of the financial markets themselves declined.
Has this affected my Penfold pension?
The money within your Penfold pension is invested in financial markets around the world through one of four investment portfolios provided by BlackRock. Therefore, the fall in value of these financial markets means that the value of your Penfold pension would have dropped since late February and your ‘total gain/ loss value’ may be showing a negative amount.
Undoubtedly, these ‘losses’ can be worrying if we pay close attention to the value of our pension from day to day. However, the amount that you’ve contributed into your pension has not just disappeared or been lost forever.
The number of units of a fund that your contributions have purchased are still the exact same as ever. The only change is that the value of these units, for the time being, have depreciated, meaning that your pension pot at the moment may be looking smaller than what you’ve already contributed.
However, the key thing to remember is that pensions are a very long term investment, so there should be ample time for the global economy to recover, and the value of your pension to ‘bounce back’ and exceed what you put in.
Why did we work with BlackRock and how have the portfolios performed?
Penfold has partnered with BlackRock, the world’s largest asset manager, to invest the money in your pension. They work hard to protect and grow your savings over the long term through a wide range of low cost investments around the world.
The good news is that the four BlackRock portfolios that we use have shielded your pension from the full extent of the losses in the financial markets this last month.
As of 20th March 2020, the MSCI ACWI, a flagship index that contains a mixture of stocks from around the world, had fallen 32% in value from its peak just one month earlier. For comparison, the UK’s FTSE 100 index had also fallen 30% over this period.
However over this same period, thanks to its advanced risk management technology, the four Penfold investment portfolios (Level 1-4) managed by BlackRock had only declined between 9% and 21% in value from their peak one month before, significantly outperforming the stock markets and other retirement portfolios (read more about how our friends at BlackRock manage your money).
We decided to work with BlackRock for lots of reasons, but there are three that are most relevant right now:
Shall I change my investment strategy?
We completely understand how unsettling it is to see drops in value, and I bet you’re wondering whether the best thing to do right now is to change your investment strategy. Although we don’t give financial advice at Penfold, and whilst it does make sense to ensure you review your finances regularly depending on your circumstances & attitude to risk, the generally accepted guidance on investing at the moment is the same as the advice around touching your face: “don’t touch it”.
This is because if you “sell” down the investments in your pension now, and hold your pension money in cash or a lower risk fund which is less exposed to the markets when the market is down, you will not be in a position to benefit when the market “bounces back”.
Although we cannot predict the future of the markets, we can certainly use the past and familiar market patterns to help inform our decisions in times of such uncertainty and volatility.
If you look over the last 20 years, another global equity index the FTSE All-World GBP has averaged an annual return of 7.5%, even including the Global Financial Crisis in 2008 (Dec-1999 to Dec-2019).
The bottom line is that volatility and uncertainty are inevitable and unavoidable characteristics of the stock market. They are not exceptions to the market trend, but rather part and parcel to it.
Despite our natural response to chaos by reducing impact and risk, investing in a market drop, or a ‘bear market’, could potentially increase the value of your investments, especially when you come to retire. If you continue to contribute regularly then you are buying your shares at a lower price, which when the market upturns, these shares will increase in value and could be beneficial in the long term. Think of this market drop as an opportunity to buy shares at a ‘discounted’ rate which will increase in value once the markets have rebounded, and more significantly over time. our markets and are not at all unprecedented historically.
As you know, pensions are a very, very long-term investment for most people. There is ample time for any losses from this current dip to recover and even uplift after the coronavirus uncertainty. So, despite the current market fluctuations, view your Penfold pension through a long-term lens and think about how the market and your investments could be performing in 20, 30 years right now after the coronavirus. Market drops do recover, you just have to be patient. It is wise to frequently review your finances and realign them to your circumstance and attitude to risk. However, it is important to bear in mind that slow and steady wins the race for investments and especially pensions.
Update on market volatility
In the 3 months since we have written this article, the global investment markets have recovered significantly. This is largely due to the hopes of Coronavirus lockdowns coming to an end around the world and global economies starting to get back onto their feet. You will see that your pension balance has most likely recovered with a positive total gain, which is great to see.
There is still a long road ahead of us and it is likely there will be some more ups and downs along the way as the world returns to normal in the next coming months. It's always a good idea to remember that your pension is a very long term investment, so it is best to not concentrate too much on the short term ups and downs, as history tells us that over the long term you should hope to see strong growth in your pension savings from staying invested across financial markets.
2. How has this affected Penfold?
We know that lots of companies, large and small, are in financial difficulty because of the current crisis, or are understaffed because of the Coronavirus & related social distancing measures. We’re very lucky that so far, all of our staff and their immediate families are currently healthy & well.
Penfold made the decision early on as a company to take responsibility in blunting the impact of the crisis by working remotely. Despite the uncertain times, we’re a technology company and we’ve built our systems to be resilient and adaptable to times like this. We will therefore continue to grow and build an amazing product for our self-employed community, whilst upholding our duty as a company at a global health level.
On a financial note, we are required by the FCA to keep a certain amount of capital on hand and we currently have many times that amount in the bank and have no concerns about our financial viability. We have very supportive investors and partners and are collectively in a strong position to see this crisis through.
We don’t think this is remotely likely, but as we are often asked the question, I wanted to remind you that if anything did happen to Penfold, your pension (which is always kept ring-fenced from any of Penfolds own funds) would still belong to you, and either us or our regulated administrator Gaudi, would be in touch to help you move it to another pension provider.
Your pension is protected by the Financial Services Compensation Scheme – so if anything did happen to it, the FSCS would step in. You can read more about Penfold & how we keep your money safe, here.
As always, please get in touch at any point with someone from our team on our online chat or email us here to answer any of your questions and concerns as quickly and efficiently as possible.
Thank you for your patience and trust in Penfold, let’s stay positive, think long-term, wash our hands and overcome this situation together!