As many people are experiencing changes to their work and pay due to coronavirus, there has been a surge in over-55s enquiring about accessing their pension pots early as a way to cover costs during the pandemic. However, people are being warned that they risk harming their future living standards by accessing their pension pots.
The Association of British Insurers (ABI) expressed concerns that people could be tempted to offset immediate financial difficulties during the COVID-19 lockdown by utilising pension freedoms to access their savings early. However, the industry body has warned against such hasty decisions, given that values have been hammered by the financial market meltdown.
Markets have dropped over 30% since mid-February, but the experts are in no doubt that markets will eventually bounce back, despite the large drop due to the current events. Nonetheless, for anyone approaching retirement with a defined contribution pension and those who buy self-invested personal pensions every year, these are worrying times.
The ABI has highlighted the risks from both poor advice and scammers during this time of vulnerability. It issued its alert less than 24 hours after the Office for National Statistics released statistics showing that almost a quarter of UK adults were being affected financially by the coronavirus pandemic and almost a third had begun using their savings to cover basic living costs.
The ABI said it was particularly concerned that people accessing their savings early would run out of cash too soon, with men expected to live to 79, and women to 82.
Its director of policy, long-term savings and protection, Yvonne Braun, 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."
The situation raises several questions for those on the cusp of retirement. First, what can be done to help pension pots recover in the coming months and years? Second, what are the financial options if you’re prepared to delay touching your pension for a while? And third, if you can’t get by without drawing pension income, what should you bear in mind?
The Pension Freedoms Act, allows savers to utilise a drawdown product once they reach the age of 55 - taking the whole amount as a lump sum - despite concerns over opaque charges and a lack of sound advice.
Previously, only annuities - which offer a regular and set income over a set period of time were available on such terms but were unpopular due to lower rates.
If you have any questions about your pension pot or whether or not you think withdrawal could be right for you, don’t hesitate to get in touch with a member of our team.