A fifth of over 55s in the UK have either reached for their pension pots or are considering doing so since the onset of Covid-19, according to an article by Rozi Jones for Financial Reporter. The article, based on new research by pension and insurance
provider Aegon, says that 12% of over 55s have taken money out of their pension, with a further 8% considering it.
Jones writes, "the data shows that the pandemic is forcing a widespread rethink of retirement plans", with 18% reporting a change to their target retirement age. Of the 18 to 34 age group, 21% are expecting to delay the age of retirement and of the 35
to 55 age group, this figure is 11%. According to Jones, the Aegon data reports that self-employed people have been impacted greatly by Covid-19, with 40% saying they will reassess their plans for retirement.
Steven Cameron, pensions director at Aegon, is quoted in the article. He says: "For those over age 55, the pension freedoms offer extensive freedom and flexibility in how they access their defined contribution pensions, but this can be a double-edged
sword. It's positive that people have the option to use retirement savings intended for later life earlier to reflect their situation. But just because you can access pensions early doesn't mean you should."
Financial Reporter article
A map out of Covid-19
The Money and Pensions Service (MaPS) has released a ten-year corporate plan outlining immediate priorities and the impact of Covid-19 on pensions, reports Hope William-Smith for Professional Pensions. The plan, released on 16 June, says MaPS will have
a "critical role to play" in the UK's economic recovery, according to William-Smith.
Sir Hector Sants, chair of MaPS, is quoted in the article. "In this plan for 2020/21 we set out not only how we will maintain progress towards these goals but also how we will respond to the current crisis, including boosting the provision of debt advice
and mobilising dozens of partners as we prepare to take on the future challenges caused by the pandemic," he says.
According to William-Smith, MaPS has already begun "adapting the guidance and support available to help consumers understand and work through the impacts of Covid-19 on their money and pensions", among other actions.
Chief executive of MaPS Caroline Siarkiewicz is also quoted in the article. "It is a health emergency which will have long-lasting impacts on the finances of many, and will impact some even more harshly than others … We already know women, ethnic
minorities, young people, and low-income workers are at particular risk [and] our vision of everyone making the most of their money and pensions doesn't just apply in better times, but is also about increasing resilience for when the bad times hit."
Professional Pensions article
State crisis
In the US, there is a major issue with state pensions and the ongoing Covid-19 pandemic. In an article for The Conversation, Raymond Scheppach, professor of public policy at the University of Virginia, reports that "many of the public employee pension
plans run by states don’t have enough money in them to make upcoming pension payments to retired state workers".
Kentucky has been in a particularly bad place since 2017, Scheppach writes, as its state system reportedly only has enough money to cover 34% of pension payments.
The problem with state pensions in the US has been "a long time coming", he says, "but Covid-19 may make it into a crisis". To give context, in the US, pensions for both the public and private sector were "defined benefit plans" wherein the state or corporation
and the employee make contributions to the plans. "Retirement payouts were set based on a formula of age, years of service and amount paid during some peak earnings period," says Scheppach. "The employee was guaranteed the pension benefit amount when
they retired and thus had little uncertainty about what they would get."
However, the state faces uncertainty about how to manage this investment, he reports. The private sector switched from offering defined benefit plans to defined contribution plans, where both employee and employer contribute money with no guaranteed payout
of retirement benefits.
"In 2017, total pension liabilities for all states was US$4.1tn and assets were US$2.9tn. That means collectively, state pension funds would need US$1.3tn to be able to make payments to everyone promised a pension. This represents about 9% of the
US gross domestic product," writes Scheppach.
With the issue of pension payouts mixed with fiscal uncertainty in the US, due to Covid-19, Scheppach thinks many states will fail to make their full contribution to pensions over the next two years. "I believe that after Covid-19 there will be a restructuring
of state governments to maximise the use of technology and substantially reduce the number of full-time workers. This means lower pension contributions by public employees. And that means less money that can be used to pay current obligations and
obligations into the near future," he writes.
The Conversation article
Are you re-considering your retirement plans due to the impact of Covid-19? Leave your comments below.
Seen a blog, news story or discussion online that you think might interest CISI members? Email bethan.rees@wardour.co.uk