PENSION plans have likely been upended in recent weeks as the government officially released plans to increase the pension freedom age to 57. This, coupled with the economic impact of coronavirus, may have left people unsure of where they stand with their retirement planning.
Pension savings have been one of the major financial assets to be impacted by coronavirus. Many forms of private pensions are invested in the stock market which has been impacted by the disease and on top of this, multiple rule change have likely forced savers to alter their retirement plans.
Maike Currie, an investment director at Fidelity International, commented on the difficult last few months’ impacts on retirement prospects: “It’s fair to say that the pandemic has, and will continue to, affect us all in very different ways – at home, at work, and financially.
“While life may slowly getting back to ‘normal’ for some of us, the financial impact of lockdown continues for many.
“A lot of households have been dealing with a fall in income while on furlough and some may face further loss of income through job redundancy.
“Many of us face questions about how we plan for the future, with the outlook still presenting a number of challenges and competing priorities with the potential to alter our longer-term plans.
“This is particularly true of retirement planning – what may seem like a small step or decision now may have far more significant repercussions when you reach the point at which you actually want to retire.
“Depending on how your circumstances or outlook may have changed in the past six months, there are several things you can do now to ensure your retirement plans remain on track.”
Maike went on to provide guidance for three specific retirement changes.
If your income has changed
Income levels have likely dropped in recent months for many consumers and families.
This could have occurred due to hours being cut, being placed on furlough or a whole host of other circumstances.
As this happens, many people may shift their focus on their immediate financial concerns and prioritise simply surviving.
As such, workers may consider scaling back how much money they place in their schemes but Maike details that in the long-term this may be risky: “Before making any decisions it’s important to consider your overall financial situation, from essential outgoings through to the different savings pots you may have accumulated.
“While opting out of a workplace pension scheme might seem like a saving for the months ahead, this means losing out on valuable employer contributions and government tax relief that could make all the difference in retirement.
“At the other end of the spectrum, you might have found that you have more money available at the moment as a result of decreased expenditure during lockdown.
“If so, this might be the ideal opportunity to increase your pension contributions.
“Committing an extra one percent in workplace pension contributions can make a significant difference to how much you have in your pension further down the line, particularly if your employer offers to match these”
Of course, some changes may be out of savers’ hands and Maike went on to advise on certain unfortunate realities.
If your pension pot has changed
Maike moved on to pension performance, which in recent months has been dramatically swayed by the global pandemic: “Markets have staged an incredible recovery since the sharp falls of February and March.
“However, many investors may find their pension pots haven’t fully regained the losses from earlier in the year, prompting them to seek alternative ways of bridging the gap between their retirement expectations and reality.
“The situation will feel more acute for those closer to retirement.
“Younger investors may have another 20 or 30 years before they plan to retire and can continue to contribute towards their pot while taking comfort in the fact they have time on their side. Maintaining regular contributions means they’ll benefit from both the power of compounding and pound cost averaging – investing more when prices are low and less when they’re high.
“If you’re closer to retirement you may want to take a more active approach and explore other means of boosting your income.
“If you’ve already started drawing down from your pension you may want to reduce your rate of withdrawal.”
Pension size changes, coupled with recent government announcements on retirement age alterations, may force some savers to completely reschedule when they can retire.
Somewhat worryingly, Maike concluded with research from her own organisation which hints that some savers may have mixed perspectives on their options.
If your retirement date has changed
“Our own research shows that despite almost three-quarters (71 percent) of investors planning to retire within the next five years, more than half (54 percent) expect to have to work for longer.
“Deciding to work later in life than you had previously anticipated allows both you and your employer to continue contributing towards your pension pot, with the added benefit of tax relief from the government on those sums.
“This also creates further opportunities for your investments to grow.
“However, it’s really important to relay your intentions to your workplace pension provider, particularly if you’re part of its ‘default investment’ offering.”