Coronavirus pension pot raid fraught with difficulties

When Mercer, one of the blue-bloods of the Irish financial sector, starts advising people to take money out of pensions, it's clear we are living in extraordinary times.

Suggesting that people should get access to pension funds that, in general, are already far from healthy enough to provide the retirement income people expect is anathema to advisers like Mercer. So the Government will not easily dismiss the notion – despite the technical, tax and legislative difficulties.

It will also weigh carefully the prospect of separately securing pension fund investment in the State's eventual need to drive economic recovery after the worst of the coronavirus pandemic passes – through something like an inflation-linked emergency bond.

But for people plunged suddenly into an uncertain financial future, it is the possibility of accessing their pension that will grab the attention. However, the question is whether now is the correct time to raid pension funds.

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Irish-managed pension funds have suffered their worst three-month performance since the 2008 financial crisis, with Rubicon Investment Consulting data showing that most of the pension fund growth of the past five years has been wiped out in a matter of weeks.

A poor February, when Covid-19 jitters unsettled markets, was followed by a equity bloodbath in March with funds shedding over 11 per cent of their value. That means the average Irish managed fund is almost 16 per cent poorer since the start of the year.

Cashing out now – even by taking some money from pension funds – will lock in those losses and make saving adequately for retirement even more difficult.

Most market analysts say the time for liquidating shares is long past: for now the best move is to sit tight. It’s sound advice but little comfort to hundreds of thousands of people struggling to figure out how they will pay bills that are looming.