Do you want to beat the State Pension in 2020? I reckon the FTSE 100 crash in the wake of the coronavirus threat can help us do just that. After all, if the virus doesn’t actually kill us, we’ll still need to provide for our old age once the crisis is over.
A full State Pension will be worth £9,110.40 from 5 April. It’s going up an extra £6.40 per week, but that’s really not the kind of cash that will propel us to a luxurious old age. On the bright side, it’s a lot more than most of the world’s inhabitants get. And if we treat it as just a starting point, it does offer a boost to whatever pension plans we can make for ourselves.
Company pension schemes provide more income for many on the State Pension. But you might be worried that the FTSE 100 crash has hurt their prospects. Such schemes tend to be invested in a wide range of assets, but a fair portion goes into shares. When shares fall, the values of pension funds fall, and the more talk we hear of pension fund deficits and the like.
The FTSE 100 today is worth around 20% less than it was at the start of the year, and that sounds like it could deal a big blow to pension funds. But I think it’s a misleading figure on two counts. Firstly, the fall in share prices hasn’t damaged the dividend income that pension funds get from their shares. And unless the coronavirus pandemic causes significant long-term harm to the companies paying out the cash, I really don’t think it’s going to.
Secondly, short-term falls tend to recover. The previous big slump was caused by the financial crisis. But since those depths, returns from the Footsie have more than doubled (once you include dividends). I expect the same thing to happen this time, though I think the recovery could be a lot quicker. A few months down the line and the virus pandemic could be over, whereas the fallout from the banking crunch went on for years.
If the stock market crash won’t do any real harm to company pensions, it can provide a positive boon to our private pension investments. And it’s our private pensions that provide the best opportunity for us to supplement the State Pension.
I have a chunk of my pension cash in my SIPP, transferred out of an old company pension. My plans, over the course of 2020, are to put that cash into shares I select myself. I’m mainly seeking shares paying good dividends, and a Footsie slump is throwing up better yields than I’ve seen in years.
Any company that was yielding, say, 4% at the start of 2020 would be offering a 5% yield today – assuming the share price has fallen 20% along with the index.
On top of better dividend yields, I have full confidence that the FTSE 100 will recover strongly once the current crisis has passed. In short, I think the next couple of months could provide some terrific pension investing opportunities.
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