It’s been just one week since the shockwave of the Brexit result hit, but already the British stock market is showing strong resilience and the FTSE 100 index has increased by 14% since its lowest point of last Friday, 24th June, to its level in mid-afternoon one week later.
Despite being faced with possibly several years of negotiating now between the UK and the EU as we agree the terms of our exit, the British are doing what we do best and just getting on with things.
Market returning to pre-Brexit levels
The knee-jerk reaction of the market was painful to witness, but like ripping off a plaster, it was remarkably quick. In fact, exactly one week after the result, the FTSE 100 stood at 6588 during the mid-afternoon of 1st July astonishingly beating the two-month high of 6337 points seen on the eve of the EU referendum.
Of course, some experts have claimed that the post-Brexit bounce back is a direct result of the predictions that the Bank of England is to cut interest rates in August. The base rate has been sitting at 0.5 per cent since 2007, but whispers are abounding that this could be slashed to 0.25 or even zero in a bid to stabilise the economy.
Analysts have stressed, however, that even if the market volatility of the last week is sustained, today’s banks and providers are in a far better place than they were in 2007 when the credit crunch hit and we were pushed into the last recession.
How Brexit could affect our pension choices
For those of us approaching retirement, thoughts naturally turn to the effect that falling rates may have on our future income.
Rates may well continue to fall as a result of the Brexit, so some experts have suggested anyone intending to purchase a lifetime annuity should consider buying now rather than risk lower rates impacting further on your fund.
Ideal for those who are risk-averse, an annuity is still the only way to lock in to a rate for a guaranteed lifetime income, and who knows how long rates might continue to fall for? Locking in now will ensure that whatever happens in the markets, your income will be unaffected.
For those who would prefer not to commit to a rate for life at this moment in time, a fixed-term annuity may provide some breathing room. You can still choose to receive an income but it would only be for a fixed period of time, say one or two years (although any period up to 25 years is allowed). After this term has ended you can then take another look at the rate situation without any investment risk in the meantime.
With a fixed-term annuity you also have the option to access the tax-free portion of your fund (usually 25%) without having to take any income just yet. This may suit retirees who do not need any additional income just now, or someone not intending to retire for a few years, so perhaps does not need any additional income at this time, but would benefit from a cash boost; to pay off some credit card debt perhaps, or clear a remaining mortgage.
It is no surprise that the recent extreme volatility in the stock market has once again made people question the aptitude of flexi-access drawdown, which opens pension funds up to investment risk.
With the current volatility of markets, we could well see an increase in the number of Fixed-Term Annuities purchased in a bid by retirees to keep their options open while the market settles.
Speak to a specialist
To speak to a specialist about your retirement income options, call the Retirement Line team today on 0800 652 1352 (or local rate mobile number 01733 307 240).
Retirement Line work on a non-advised basis, providing factual information to enable you to make your own informed decision.