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Stay calm and average out: 3 key messages for your Brexit anxious pension members

It was, of course, blind of the facts that I had been booked to run a financial wellbeing lunch and learn session for a major UK employer last Friday. As it turned out, I could have applauded myself for the neat way I was able to tackle Brexit-angst just hours after the news of the 52/48 outcome. I had checked early results, after waiting for the 23rd district to announce, and sensed that ‘leave’ was going to win. When I checked again at 6am, there it was. BREXIT. Slides already approved by my compliance manager, there was no scope to make changes in the few spare hours before my workshop.

Hoorah for flip-charts! This is what I covered:

Longevity

I drew X and Y axes on a standard chart and a dotted line from left to right rising at a 45 degree angle. “This is what the stock market does, right?” There was much furrowing of brows. Surely I had heard the news that the UK market had plunged by 8%, so what was this upwards trajectory? Simple – once I added the 100-year scale. And this is true. Plotting stock market resilience back 100 years proves that the long-term direction is up.

Message 1: Stay calm, it normally heads in an upward direction over time. It is ‘time in’ rather than ‘timing’ that often wins.

 

Pound-cost averaging

I then drew a looping roller coaster of peaks and troughs, pointed to a low point on a curve and asked: “If you’re saving into your pension plan, is it a problem when the market drops this low?”

I always get someone asserting that “yes, it is very bad”. But I’m also pleased to report that I almost always get someone saying “But if the stock market is at a low point, aren’t we getting more for our money?” Bingo! Cue the perfect opportunity to explain that pound cost averaging means there are 12 purchase points a year for members’ pension investments and that the price therefore averages out. As the company looks to make its June payment, the employees in the workshop all chilled out about the market being low that day.

Message 2: When you are paying in and the market drops, don’t worry – you are getting more for your money!

 

De-risking/lifestyling

If your default fund remains invested all the way to normal retirement date – like, for example, Aviva’s auto-enrolment offerings – this is a debatable point. But in Friday’s case, the default fund slowly adopts a gilts and cash glide path in the run-up to retirement. During the session, a chap slightly nearer retirement chirped up to remind everyone that it is bad if the market falls when you are about to draw benefits. Awesome – this gave me the perfect opportunity to explain lifestyling.

Message 3: If you are close to retirement, your lifestyle mechanism may have protected you from any kind of harsh BREXIT tumble.

 

It was almost as if I had planned the day to give me the chance to explain why employees shouldn’t panic if the stock market dips. Stay calm. Chill out. Eat chocolate or a large piece of cake. Or perhaps, in the spirit of employee wellbeing, a piece of fruit!

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