COVID-19 hits retirement saving plans

According to a research by Scottish Widows, 10% of UK adults who have a pension and are yet to retire, will need to work for longer, or significantly increase their savings, to make up the shortfall

The coronavirus crisis has led over three million people to interrupt their retirement saving plans, by reducing or entirely stopping their pension payments, it has been revealed in a research by Scottish Widows.

According to the research, 10% of UK adults who have a pension and are yet working, will need to work for longer, or considerably increase their savings later on, in order to make up the shortfall. Not doing so may lead to poverty in later life.

Around a quarter of workers (24%) are worried about paying for essentials such as food and energy, 20% are worried about paying the rent or affording their mortgage, and 19% have seen their income fall because of coronavirus.

These short-term financial concerns are having an impact on long-term savings, with 10% either reducing their pension contributions or stopping their savings completely.

Over two in five (43%) self-employed workers have seen a drop in their income, which is nearly three times the proportion of employees (16%).

It has led 19% of self-employed workers to consider the need to pause or reduce pension contributions. It is apart from the 41% of self-employed people who, in 2019, said they were not saving anything towards retirement.

Part-time workers are more vulnerable and less prepared for retirement as 28% have lost their job or have been furloughed due to coronavirus, compared with 18% of full-time workers. Therefore, part-time workers are two-and-a-half times more likely to change their long-term savings habits than full-time workers (15% versus 6%).

The research found that approximately one in five (18%) of those in the 18-24 age group have either reduced or stopped their pension contributions. Almost 7% of those in this age group have actively moved their pension to a lower risk investment fund, despite being many years away from retiring.

Women who are still in the workforce (27%) are more concerned about paying for essentials than men (22%) and are more worried about paying the rent or mortgage (22% versus 18%).

A significant number of women say that financial worries are having a negative impact on their overall mental wellbeing (72%) than their male counterparts (63%).

In the South East, just 6% of savers have felt the need to reduce or pause pension contributions.

In London, 16% of savers have felt the need to reduce or pause pension contributions, the second-highest rate in the country after the West Midlands (17%).

Scottish Widows has earlier called for a single lifetime savings pot to be introduced, in order to help people better withstand financial shocks, while still saving enough for a comfortable retirement.

Its modelling has predicted that under these circumstances, savers could withdraw £1,000 up to three times during moments of financial crisis, or take out 50% of their early savings for a deposit on their first home.

Pete Glancy, head of policy at Scottish Widows, said: The COVID-19 crisis has revealed a painful lack of financial resilience in the UK, leaving millions of people exposed with little or no safety net to fall back on.

Pete said, as the full impact of this crisis becomes clearer, more people may feel forced to pay for today’s essentials with tomorrow’s savings. However, this will only prolong the economic pain of coronavirus and could result in more people facing poverty in retirement.

He added: Introducing a single lifetime savings pot would allow flexible access to savings during times of financial hardship. Not only would this have supported people struggling with the impact of coronavirus, but could also help crack the lifetime savings puzzle at the same as building longer term financial resilience.

He said, the next time that a crisis hits, more families could avoid being forced to choose between security today and protecting tomorrow.