Should I continue to pay into my pension and investments?

By Rachel Efetha, Chartered Financial Planner.

Should I continue to pay into my pension or investment ISA given the state of the stock market?

My clients John & Lisa recently emailed me to say that they would like to pause their pension contributions given the global pandemic.

I asked them if the pension payments were still affordable to them and whether this was purely an investment concern rather than a concern that they didn’t have enough income coming in to cover all the bills.  They confirmed that it was the state of the markets that they were worried about.

I went on to explain the concept of “pound cost averaging”.  This is the effect that regularly buying units in a volatile market over a period allows you to purchase them at a cheaper average price.

How does “pound cost averaging” work?

To put it simply, if you invest £100 a month in a fund with a unit price of £5, you will have 20 units.  If the price falls to £4 the following month you would buy 25 units, the fund falls again in month three to £3, buying you 33.33 units. In month four the price rises back to £4, buying you 25 units again, and back to £5 in month five, buying 20 units.

Are you still with me?  You now have 123.33 units and you have paid £500 for them.  That makes the average unit price £4.05 and your total value at £5 a unit is £616.65.

The mean average you have paid is £4.20, so if the price had stayed at a constant of £4.20 for the five months, you would have bought 119.04 units rather than the 123.33 you have, demonstrating that buying units in a falling market is a good thing, as long as the market recovers, which, providing you have a five year plus timescale, history has shown us that it always has recovered.

After this explanation, John & Lisa continued to pay their monthly premiums into their pensions.

How Anstee & Co can help you with your pension and investments

We are a firm of Independent Financial Advisers (IFA’s). This means that the financial advice we provide is unbiased. We will consider all the financial solutions available to you. This is unlike some financial advisers, who will recommend only their products or work from a limited panel.

The initial meeting is at our cost, so why not contact us today? A meeting can be arranged at your home or our Head Office located at-

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If you have any comments or thoughts on this article “Should I continue to pay into my pension and investments?”, then please let us know.

Finally, the information contained in this article is for information purposes only and does not constitute financial advice. Anstee & Co. is authorised and regulated by the Financial Conduct Authority (FCA).