Pension: How to get your savings ready for 2021 following ‘devastating’ Covid-19 effects

Martin Lewis gives his advice on state and private pensions

Pension savings and other financial assets were damaged throughout 2020 as coronavirus continued to impact the economy. Many will want to put 2020 behind them and focus on recovery for the year ahead and with the potential of a vaccine on the horizon, the UK may see some form of normality on the horizon.

This will be hugely relieving for the elderly population who, as interactive investors’ Great British Retirement Survey shows, had been forced to adapt their retirement plans.

interactive investor found that over 55s increasingly had to dip into their pensions during the pandemic, with the Association of British Insurers reporting a big jump in pension savers accessing their pots after the first lockdown ended.

Additionally, there was a disproportionate rise in the number of older people losing their jobs this year, with the over 50s now at greatest risk of being long-term unemployed, according to the DWP.

The IFS also detailed one in eight workers over 50 had changed their retirement plans as a result of the pandemic, with more choosing to work for longer if they could.

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Becky O’Connor, the Head of Pensions and Savings at interactive investor, commented on these changes: “It’s been a very unusual year, with unequal impacts from the pandemic.

“It’s not surprising that this has affected people’s pension saving habits, access to pensions and retirement plans.

“People talking more openly about pensions is one good thing to have emerged this year. Without conversations that normalise long-term saving and investing as a thing we all do and are engaged in, we run the risk of all of us not understanding its importance and ultimately, not having enough to live on when we stop work.”

Fortunately, James Jones-Tinsley, a Self-Invested Pensions Technical Specialist at Barnett Waddingham provided three tips people could use to make the most of their private pensions in 2021.

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Stay calm, even in a crisis

While pensions have taken a hit this year, it should be remembered that retirement plans are long-term in nature and therefore there is still time to recover, as James explained: “Covid-19 has shaken up the economy and had devastating effects on many people’s finances.

“When it comes to pensions, market volatility means that some scheme members will have lost value in their pension, or seen their planned retirement age pushed back.

“It’s important to take stock of what’s changed and re-evaluate retirement plans, and you might need support from your pension provider or financial adviser to understand the steps you should take to get back on track.

“If your pot has taken a hit, postponing retirement by a little as a few months and working instead can make all the difference as additional returns and contributions can mount up if the market rebounds.

“Stay calm and don’t make rash decisions – savings are designed to be stable over the long term, and there’s plenty of guidance and advice available to help you if you’re stuck.”

Seek advice and make a plan

While pension withdrawals can be safe and warranted when done right, it is an unfortunate reality that coronavirus forced some people to make rash decisions which may haunt them in the long run.

Analysis on this revealed just how commonplace the issue has become, with James noting the problem is particularly prevalent with certain holders: “Research from the Pensions and Lifetime Savings Association (PLSA) found that just 28 percent of people with defined contribution (DC) pensions had a clear plan about how they would access their pension.

“And in many cases, Covid-19 will have impacted people’s savings without them being aware. It’s important to take financial advice before and as you reach the age where you can access your pension, to get a clearer understanding of how your money will last the length of your retirement and maintain the lifestyle you want.

“You can then make a financial plan that covers your short, medium, and long-term goals, and considers the best and worst case scenarios.

“No one wants to end up shooting themselves in the foot by accessing their pension too early.”

Watch out for scams

Coronavirus has brought out the best and worst of people and unfortunately, fraudsters have not shied away from taking advantage of the pandemic.

Pension assets are a common target for scams and James concluded by urging retirees to keep their wits about them: “This year, the Work and Pensions Committee launched an investigation into pension scams as part of an inquiry into the impact of pension freedoms on the protection of people’s savings.

“While pension freedoms facilitate greater flexibility by allowing over 55s access to their private pensions, it also leaves savers more vulnerable to being scammed if money is withdrawn without trusted financial advice.

“To make matters worse, fraudsters have been exploiting the global crisis and scamming more people out of their life savings.

“To protect your money, it’s important to research the warning signs of a potential scam attack, so you can spot any red flags. If you’re hesitant or unsure, always ask for advice so that you feel totally confident in your decision to withdraw from your pension.”

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