There are growing fears that the COVID pandemic will leave many investors will little or no retirement income.
The concern is around the numbers of workers and families that have started to drawdown parts of their pension pots to see them through the financial squeezed caused by the pandemic.
That fear has been exacerbated by the falls in equity prices which have also hit pension values as the world stumbles into an ever deeper recession.
It has become such an issue that UK Insurance association the Association of British Insurers (ABI) has warned the public not to see their pensions as a quick way to access money.
It has expressed a real concern that people could be tempted to use the pension freedoms to access their pensions at age 55, without thinking through the longer term consequences, or falling prey to pension scammers out to rob savers of their pensions. Recent ABI research highlighted that, even before Covid-19, if the average amount that was being withdrawn from pension pots continued, many people risked running out of money in their retirement, without any other sources of income.
Retirement income is likely to have to last for decades: a man aged 55 can expect to live, on average, for a further 24 years; a woman at the same age can expect to live, on average, for a further 27 years.
Yvonne Braun, 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. Now, more than ever, it is important to think longer term, consider your options, and seek advice and guidance.”
Zurich raised concerns over the issue late last year as it found 50% of people who were using pension freedoms rules to draw an income from their pension have not yet hit retirement.
It found more than 300,000 over-55s are taking a regular income from a pension in drawdown, even though they are still in full or part-time work.
Of those working full-time, more than half (55%) said they could get by easily without their pension cash, as did nearly a third (29%) of those in part-time jobs.
Zurich said its findings raised fears that hundreds of thousands of savers could be burning through their pension cash too soon.
Alistair Wilson, Zurich’s Head of Retail Platform Strategy, said, “Savers drawing a pension income they don’t yet need are in danger of leaving a black hole in their finances when they eventually hit retirement. They could also be landed with a hefty tax bill if their pay packet and pension income push them into a higher tax bracket. It can be tempting to tap into your pension early, but if you can afford to leave the money invested, where it can keep growing tax efficiently, you could build a bigger pot when you fully retire.”
What makes matters worse is many are accessing their pensions without taking any advice and seemingly unaware of unconcerned of the long term impact on their future pension values.