Pensions: Money Box caller talks impact of age differences
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The pandemic has created a somewhat unbridled economic reaction which the UK Government is trying to tame. However, the side effects of this could spell disaster for pension savers in 2022, prompting David Woodward, founder of Woodward Financials, to share which of these will have the biggest impact on pension and investment portfolios.
Mr Woodward said that while the pandemic is still a cause for financial concern, it is no longer the biggest issue facing consumers.
He noted that short term volatility, wherein the markets jump sporadically in a short period of time, can be traced back to announcements of new variants and geopolitics.
Mr Woodward commented: “The pandemic and the multiple variants is an obvious cause for concern but by far not the greatest risk to your capital, short term volatility has been witnessed on the announcement of a variant of concern.”
As new variants are discovered, investors quickly get cold feet with some of their riskier, or geographically-influenced investments, which is what causes the initial downturn in some markets.
However, Mr Woodward pointed out that once investors realise the situation is not as bad as it first appeared they regain their lost confidence and return to their normal investing procedures.
These constant drops and spikes in the market have deterred many from starting their investing journey with the money they had saved during lockdown and with obvious reasoning.
This can spell trouble for long-term investors who need to stick it out, such as those with invested pensions.
Mr Woodward shared some hope for people in this situation, noting: “We have come a long way with multiple vaccines and anti-viral drugs.
“Coupled with the likelihood that most viruses will fade in time would likely push this lower down the risk scale as each month goes by.”
This prediction provides savers with something to look forward to as the global economy returns to normal.
However, between interest rates and inflation, Mr Woodward warned that a “domino effect” could be starting if the effects are mitigated in the correct manner.
He noted that these are “two big areas of concern” saying that the tapering efforts which have been used to control interest rates, and investor perception in Mr Woodward’s opinion, need to have the required due diligence and cannot be rushed like other decisions during the pandemic.
He shared: “Done incorrectly without due care and attention, we could see a domino effect impacting industry and every level of society.
“Mistakes can be made, however a mistake when coming out of a pandemic would be of biblical proportion so you must rank this higher up the risk scale.”
Mr Woodward added that investors and pension savers must now include “galloping inflation” into their risk scales and calculations.
“This was always going to rear its ugly head, the supply of money is the main cause of inflation and we witnessed this to crazy levels in 2020.”
Inflation is currently sitting at 5.1 percent, a 10 year high, and is predicted by some to soar as high as six percent next year.
The majority of these inflammatory economic responses is due to the pandemic, and Mr Woodward believes it could have been dealt with in a better manner.
He said: “Experts knew that the pandemic would be lasting two or three years, so you could say the furlough scheme could have been better managed.
“This may have curtailed the widespread fraud and overpayment of the furlough scheme and thus minimised the impact of future tax rises on the UK public.”
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