Pension savers are being warned against making hasty decisions to access their pots during the lockdown – as doing so could have a severe impact on their living standards for years to come.
The Association of British Insurers (ABI) warned people against making rash financial decisions during the current economic uncertainty which they may later regret.
There is a concern that over-55s could be tempted to use the pension freedoms to access their pensions without thinking through the longer term consequences of having less money in their pot to see them through their retirement. Or they could fall prey to pension scammers out to steal their pensions.
Recent ABI research highlighted that, even before the Covid-19 outbreak, if the average amount that was being withdrawn from pension pots continued, many people risked running out of money in their retirement, without any other sources of income.
Lockdown will not last forever, but the decisions you make today about your pension could impact on your standard of living for years to come.Yvonne Braun, ABI
Separate research from Aegon found that 53% of 55 to 64-year-olds have been checking their investments in recent weeks.
People may typically need to rely on their retirement income for decades.
A man aged 55 can expect to live, on average, for a further 24 years, while a woman at the same age can expect to live, on average, for a further 27 years.
Yvonne Braun, the ABI’s director of policy, long-term savings and protection, said: “Rushed financial decisions are rarely the right ones, even at this worrying and uncertain time.
“Lockdown will not last forever, but the decisions you make today about your pension could impact on your standard of living for years to come.”
Charlotte Jackson, head of pensions operations and consumer protection at the Money and Pensions Service, said: “This is a very worrying time for everyone, and the impact of the coronavirus on financial markets is adding to the stress.
“Difficult as it is, the most important thing is not to panic or rush into making any decisions about your pension at the moment.”
Helen Morrissey, a pension specialist at Royal London, said: “Pensions are a long-term game and making short-term decisions could undermine your financial security in retirement.
“If you are concerned about how the current volatility is affecting your pension we recommend you speak to a financial adviser.”
The ABI is reminding savers to:
– Think twice before taking money out of your pension if the rules allow it. Rather than deplete your pension, consider using other sources of income, such as cash savings, as doing this will likely carry fewer long-term financial risks.
– Get authorised financial advice or guidance before you make any decision. If you are thinking about taking money out of your pension, consider contacting Pensions Wise, which is part of the Money and Pensions Service. You can also pay an independent financial adviser who can make recommendations, based on your personal circumstances.
– Remember that pensions are typically invested in a range of assets. This means that, over time, their value can go up and down. If you are close to retirement and in a workplace pension, in most cases your pension will have been moved into less risky assets than shares, that will help cushion the impact of any falls in returns. Workplace pensions will have a plan for how they think customers will access their pensions, so speak to your provider if you are unsure.
– Beware of scammers. Pension scammers thrive on uncertainty and fear. Do not respond to unsolicited phone calls, texts or online offers of pension reviews, and never be rushed or pressured into making any decision about your pension. If you are thinking about changing your pension arrangements, check the FCA register or call their helpline to check that the provider is FCA authorised .
More information on pensions and insurance during the Covid-19 crisis is available at www.abi.org.uk/products-and-issues/topics-and-issues/coronavirus-hub/.