Coronavirus- what should I consider for my pensions savings?
Coronavirus- what should I consider for my pension savings?
The global spread of the coronavirus has been an important contributor to the recent volatility in the financial markets. Members may be feeling uncertain as to what this will mean for their pensions. This depends on whether you are a member of the Defined Benefit (DB) (final salary) pension scheme or if you are a member of the Defined Contribution (DC) pension scheme or both.
For members of the DB scheme, it is important to remember that the value of your pension is determined by your final salary and length of service. The Trustee of the scheme ensures that the assets are invested to enable pensions to be paid when they fall due. The scheme is relatively well funded and as a result of investment decisions made over the last few years, the scheme has no equity exposure and a high level of hedging. This means that the funding levels have not experienced the falls that we have seen in equity markets over the recent weeks. The Trustee will of course continue to monitor funding levels as the situation evolves.
For DC scheme members, it is important to remember that pension savings are invested in assets for the long term, during which time fluctuations in prices are to be expected. Most members will have their savings invested in the scheme's default investment fund (the SL Mobile Diversified Growth Fund) which has a well-diversified investment strategy for the long-term. This is designed to smooth out some of the sharper ups and downs in the markets by investing members' savings not just in equities but across a number of different asset classes and geographies. Although the fund will have suffered some losses, its more prudent and less risky structure compared to some other schemes will mean members have weathered the falls a lot better by comparison. It is important hwoever, that members consider the long term and not only the current market volatility.
If a DC member is closer to retirement, the default strategy automatically transfers a portion of their savings out of the diversified growth fund into a bond fund and a cash fund. This is designed to reduce risk for those nearing retirement whilst still offering the expectation of growth over the long term.
There will be some members who are not invested in the default strategy because they have chosen to select their own funds to invest in. These funds will have been impacted differently depending on the assets they are invested in and the resulting level of risk that is taken.
Should I look to switch my funds?
It's a very normal reaction to be concerned when you see the value of your pension investments fall, but it is important not to panic.
If, for example, you switch to funds which you think may be 'safer' or less volatile; you're likely to be selling after markets have already fallen and, importantly, before they rise again. That means you're locking in losses and will potentially have less money than someone who kept their composure, and their money invested. It is recommended that you review where you are invested so that your funds are appropriate for you and your retirement plans.
What can I do?
Defined Contribution members can view the value of their pension fund through Telefonica Rewards by clicking www.telefonicarewards.com
While you can’t control how markets perform, you can control where you’re invested. Periods of market ups and downs are a valuable reminder of the importance of spreading your money across different types of investments and geographical locations. The Telefonica UK Pension Plan allows you to choose how your pension contributions are invested. Most people are in the default ‘Lifestyle’ option and this option remains appropriate for pension saving and tailored to the time you have remaining until retirement. The basic approach to taking greater investment risk whilst you are further away from retirement remains valid.
Should I stop paying into my pension?
Whilst you can stop contributions into your pension, if for example, you are facing financial difficulty; it is not to be recommended. You would not receive matching contributions from Telefonica, you will receive reduced life assurance cover and you would lose the right to income protection cover. By continuing regular pension savings during a period when markets are lower, the money that you are saving for your long- term future works harder by purchasing more units in the underlying funds. This will work in your favour when the markets eventually recover.
Can I change my pension contributions?
Yes, you can increase or decrease the amount that you contribute into your pension at any time by logging into Telefonica Rewards. Before making any changes, we’d suggest you read the further guidance on the Telefonica Rewards site www.telefonicarewards.com. In particular, be aware that if you reduce your contribution, Telefónica’s contribution may also reduce and you can only reduce your contribution to a minimum of 3%.
You can reduce or increase your contribution at any time by logging into Telefonica Rewards at:
Select “Review Benefits” and choose the pension benefit. The change will take effect from the first of the following month.
Remember, if you reduce your contribution, Telefonica’s contribution will also reduce in line with the contribution structure. Click here for the contribution table: http://myhr.o2.com/HR-UK/payandbenefits/benefits/Pages/Pensions.aspx
What protections are in place for my pension should something happen to Telefonica UK or Standard Life?
The Telefonica UK Pension Plan is made up of two main different types of pension scheme. The Defined Benefit Section & The Defined Contribution Section.
1) The Defined Benefit Scheme / final salary scheme (some employees hold entitlement to a pension from this section of the scheme).
This type of scheme is protected by the Pension Protection Fund.
This pays compensation to scheme members if employers become insolvent and the scheme doesn't have enough funds to pay their benefits.
However, the compensation might not be the full amount and the level of protection depends on whether you're:
- already drawing benefits
- still contributing to the scheme
- a deferred member who has left the scheme but has built up entitlement
2) The Defined Contribution Scheme or money-purchase scheme.
The amounts you and Telefonica UK pay into the scheme are invested to build up a pension pot which you use to draw a retirement income. This money is not held by Telefonica, it is administered by the pension provider - Standard Life.
How much you get out depends on:
- the charges you pay
- how much is invested, and
- how well your investment performs.
This type of scheme isn’t covered by the Pension Protection Fund, but your savings are invested and held by Standard Life.
Standard Life is authorised by the Financial Conduct Authority (the UK’s regulator) and is required to have large amounts of capital to prevent it going bust. Your savings are protected by the Financial Services Compensation Scheme (FSCS). For more information on the FSCS, please visit www.fscs.org.uk.
If I get less commission / bonus, how does this affect pension?
Under the Defined Contribution Plan, the definition of Plan Salary is Basic Salary. Commission and bonus is not included in the Plan Salary and therefore getting paid less commission does not impact the contributions to the pension.
How can I check my expression of wish for my pension and death in service is up to date?
Your expression of wish can be checked by contacting Standard Life who are the pension administrator for the DC section and LCP who administer the DB section. The expression of wish can be updated online via the pension website which can be accessed through www.telefonicarewards.com. Standard Life can be contacted on:
- For DC elements of your pension (Core DC and auto-enrolled):
Standard Life House
30 Lothian Road
Tel: 0345 60 60 077
- For final salary / DB elements of your pension:
Team – Telefónica Pensions Administration
Lane Clark & Peacock LLP
St Paul's House
Tel: 0800 731 2638
If I have any other questions, who can I contact?
In the first instance, please address any questions to the pension administrators detailed above. Standard Life for the Defined Contribution Plan and LCP for the Defined Benefit Plan.
If you have other financial concerns, you can contact ‘Be Supported’ who can offer practical information on money matters. http://myhr.o2.com/HR-UK/my-day-to-day/Myself-and-More/AXA-Wellbeing-Services/Pages/default.aspx or call 0800 072 8090.
Take a look at our financial wellbeing information on My HR http://myhr.o2.com/HR-UK/my-day-to-day/Myself-and-More/Pages/Financial-Wellbeing.aspx
The Telefonica Pensions Team