The COVID-19 pandemic came as a big surprise and many were not prepared to cushion the financial blow it delivered. Unemployment in the UK rose to 4.9% in December—its highest in four years—as another strict lockdown swept the nation before 2020 came to a close.
With uncertainty from both the pandemic and Brexit still looming, business and investments are simply not pouring in fast enough. Experts predict that a full economic recovery is not likely to happen until 2022.
Clearly, the UK and its citizens are in a tough financial spot. In particular, individuals planning for their eventual retirement are being forced to re-evaluate their future plans—but just how worried should they be? To answer that question, one would have to look at how COVID-19 has affected retirement planning in the UK.
Adults putting retirement plans on hold
With businesses downsizing or pausing operations, many Brits have been furloughed or made redundant. The sudden loss of income has thrown a wrench into people’s retirement plans. Indeed, according to a YouGov survey, one in eight workers over the age of 55 are considering delaying their retirement. A separate report by the Institute of Fiscal Studies might explain why: One-third of UK employees have suffered financially as a direct result of the pandemic.
There are persisting concerns about the value of their pension pots, as well as the deductions many have made from their savings and retirement accounts. For one, pension schemes invest in stocks and other securities, which have taken a hit over the last year. The value of their pension pots have likely diminished along with other investments. And by delaying their retirement, workers hope to earn more and replenish their accounts, so they will be fully funded by the time they reach their retirement age.
Withdrawals from pension pots surge
The size of your retirement fund, which could be spread across various pension funds and assets, could have also taken a hit due to a succession of withdrawals. Ideally, retirement planning experts recommend a pension pot of approximately £300,000, given that retirees typically spend an average of £27,000 per year. A pension pot of that size could last a retiree for a little over a decade and leaving it untouched until then is always the best course of action.
However, there has been an uptick in pension fund withdrawals, says HM Revenue & Customs. HMRC attributed it to the need for cash to pay for living expenses while people dealt with a reduction in incomes. But dipping into your retirement fund should always be the last resort. Trying to hit £300,000 should be a retirement goal that Brits work towards, while paying for any withdrawals made prematurely.
Assessing COVID-19’s impact on your retirement plans
Everyone has been financially impacted by the pandemic to an extent. But, there is no reason to panic if retirement is still years down the line for you. The economy will rebound and, if expert predictions prove true, it could happen next year. The value of your pension pot will eventually regain its health as long as you stay on track with your contributions.
If your scheduled retirement is coming soon, however, you might consider downsizing. Watch your expenses so you can live off of your retirement income with no trouble. One other consideration is to postpone your retirement. There is no longer a default retirement age in the UK, which allows you to continue working and generating a steady income as long as you are able. The good news is that workplaces are more accommodating now, so you might be able to enjoy greater flexibility at work.
These are uniquely challenging times that we’ve all had to adjust to. You might have to make some sacrifices, like the age you plan on officially retiring, but for the security of your future, it will be worth it.