Pandemic throws our plans for retirement into disarray - Sarah Coles

The only person in my family who had exactly the retirement he planned was my grandfather, who proudly proclaimed he would work until he dropped, and then did precisely that.
Pandemic has thrown plans for retirement into disarray.Pandemic has thrown plans for retirement into disarray.
Pandemic has thrown plans for retirement into disarray.

Everyone else has been blindsided by events they couldn’t possibly know were coming. For some, work dried up as they got older, others became ill or had to stop work to care for a loved one. It has always felt like they were particularly unlucky, but during the pandemic, this has become the norm.

FCA figures show that almost three in five people who retired between March and October did so because of the pandemic. One in four retired because they lost their job or couldn’t find work because so much of the economy has shut down.

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Meanwhile, 15 per cent had to retire because of ill-health – either because of Covid directly or because they needed to shield or self -isolate. Almost one in five stopped work when the health crisis made them realise they needed to change their lives, and they didn’t want work to be part of it anymore.

If you plan to work later in life, or to start really focusing on pension contributions once the children have left home, being forced to retire earlier will have an even more profound effect on your plans.

More people are now falling into this higher risk group, because the impact of the pandemic means they’ll need to work later in life. Of those aged 50 and over who lost their job due to Covid, one in five were forced to delay their retirement as a result. Of those who had their hours cut, 15 per cent said they’d have to work later in life and of those who took sick leave, 12 per cent said they had postponed retirement.

If working later forms part of your retirement strategy, you need a Plan B in case things go wrong. Unfortunately, most people haven’t even thought through Plan A properly yet.

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The FCA research shows that among people aged 45 and over who are still working, 58 per cent have put little or no thought into how they’ll manage financially in retirement. Among those in this group with a defined contribution pension (as opposed to a final salary one) almost a third have no idea how much income their pension will produce and another quarter have relatively little idea.

None of us can afford to leave these things to chance, so it’s worth taking four steps now, to prepare for any eventuality.

First, you need to know what you already have. Our research shows that only around a third of people have any idea what their pensions are worth so far, so you’ll need to do some legwork to find out. You could have a number of pensions from old employers kicking around. You need to dig out paperwork on all of them, and if you can’t find any, contact your old employers and ask for details of the pension company or administrator they were using at the time. Once you’ve tracked them down, see what you have saved in each of them.

Next, you need to get an idea of how much money you need to live on in retirement. The rough rule of thumb is that most people need an income between around half and two thirds of their salary, but it’s different for all of us. Ideally, you should consider the kind of lifestyle you want, and then complete a budget calculator to find out what you need.

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You can then use a pension calculator to work out how big a lump sum you will need in order to generate that income. It will also show you how big the shortfall is likely to be. Don’t forget to factor in the state pension, and any cash you plan to use from elsewhere. This will give you an idea of the gap you need to make up over that time.

There are three key ways to close the gap. Usually it will involve increasing your pension contributions, so you pay in as much as you can afford, as soon as you can afford to do so. It may also mean planning to retire later – on the understanding this may not be entirely within your control. You can consider where your pension is invested, and whether it could be working harder for you.

The final step is to build your Plan B. This can come in a number of guises. You can accelerate your contributions, or save into ISAs alongside your pension, so you have additional cash if you need it. If you haven’t factored in downsizing your home, you could keep this up your sleeve.

You can also consider the lifestyle compromises you’re prepared to make if push comes to shove. Nobody’s Plan B is ideal – otherwise it would be your Plan A – but having one ready will protect you from the worst possible consequences if you’re hit with the unexpected.

Covid scammers are on the rise

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Scammers are ramping up their attacks. In the 12 months leading up to the pandemic, one in five people were approached out of the blue by people they thought were investment and pension scammers.

One million responded, and 100,000 people paid money to potential scammers.

Coronavirus has provided even more opportunities for criminals, and during the crisis more than two in five people say they have seen these approaches increase.

For the authorities, tracking down the scammers remains an enormous challenge, given that they work across borders and keep moving.

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It means the onus is on us to get to grips with common scams and take steps to check whenever we’re approached out of the blue.

The good news is that our research shows the vast majority of people are confident we’re able to spot a scam, and we’re actually more likely to be suspicious of a perfectly legitimate approach than we are to fall for a scam.

The bad news is that the scams we’re most likely to fall for are the ones that convince us they’re coming from an organisation we’re already dealing with.

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Thank you

James Mitchinson

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