In these unprecedented times, financial security is one of the most pressing issues that people in the UK (and the world over) have to contend with. Whether it’s wage security or the current status of pensions, money troubles are at the forefront of the COVID-19 pandemic.
In this article, we’re going to deal with pension security and what the pandemic means for your retirement finances. From avoiding pension scams to various pension risks, the information in this blog gives you a lot to think about and it’s relevant to savers, administrators of pension schemes, and employers.
What are the key risks for savers during COVID-19?
Pension security during COVID-19 is high on the agenda for the government, as is financial security in general. There are some risks that COVID-19 could pose for savers in the UK, and the trustees of defined benefit and defined contribution schemes need to be proactive in reducing those risks. This also applies to employers and pension scheme administrators.
The risks include the following:
- Pension scams have become more prevalent during the outbreak. We’ll talk more about this later, but the threat of such scams needs to be dealt with.
- Benefits still need to be paid to those who need them.
- Employers have a responsibility to continue providing their pension contributions.
- Savers need expert guidance to navigate the unprecedented financial knock-on effects caused by COVID-19.
Coronavirus has caused a market panic, but what does that mean for your pension?
As you can imagine, most financial markets have taken significant hits because of the pandemic and the pensions market is certainly no exception. Even the FTSE is set for its biggest fall since the financial crisis in 2008.
There has been a rapid knock-on effect on the pensions market, and pension savers across the country are currently seeing losses of almost 10%. Elsewhere in the savers market, those who hold share ISAs have potentially lost a quarter of their money in certain funds.
For savers with guaranteed salaried pensions, the outlook is perhaps not so bleak. As their payouts are guaranteed, these savers are not so much at the mercy of the turbulent and currently unpredictable market. What’s more, because most UK pension schemes do not invest so much in equities than in years gone by, a fall in the market does not mean a pound for pound fall in the total fund value (i.e a 10% fall in the market does not equate exactly to a 10% in the fund’s value).
The average pension fund amounts to around 60-65% in shares, while the remainder lies in government bonds, corporate bonds, and property. In fact – and this is another slight silver lining – the value in government bonds has actually increased amid the coronavirus outbreak.
Our advice to specific groups
Although our current situation means that a lot is currently ‘up in the air’ certain groups can get some comfort from the following advice.
For pension scheme trustees
If you’re a trustee of a pension scheme and you’re in charge of a pension scheme and its members, you need to proactively tackle all potential risks to savers. Get in touch with the pension scheme administrator/provider for more information on contingency plans to ensure the members of your pension scheme aren’t hit too severely.
For pension scheme administrators
The outbreak has put great stress on pension administrators. Priorities for pension scheme administrators should be the following: benefits payments need to go through, retirement and bereavement processes still need to be carried out, and any general administrative work that can accelerate these tasks must continue to be processed.
If it is feared that a pension scheme cannot pay out what is owed to its members, all trustees and administrators need to contact The Pensions Regulator.
Again, the outbreak has put a huge strain on businesses. Aside from communicating with the trustees and administrators of their pension providers, all employers should consult the advice and guidance that the government has provided.
What about pension scams during coronavirus?
Financial regulators have warned of an upsurge in pension scams and various pension mis-selling schemes during the COVID-19 outbreak, so you need to stay vigilant. In a statement for Financial Times, a senior analyst at investment platform AJ Bell had this to say:
“These dodgy schemes take many forms, from investment-based scams targeting investors who are starved of income to ‘early access’ pension offers aimed at those who may be struggling to make ends meet”.
“There are tell-tale signs to look out for when it comes to spotting scams. Often salesmen will use high-pressure tactics to get you to part with your cash, with the investment in question claiming to guarantee sky-high returns on your money. Usually these returns are either wildly exaggerated or a complete fabrication”
We have written about COVID-19 pension scams in more detail, so take a look here. For more guidance on avoiding scams and pension mis-selling, read our ‘How to get scam smart in 2020’ guide. You’ll also find more general information on our blog section.
We’ll get through this together
In such unprecedented times, it’s easy to get swept up by misinformation and emotionally-charged headlines. Remember how important it is to keep a level head, to stay vigilant as well as informed.
Whatever the crisis may bring, we’re still on hand as claims management specialists to offer mis-sold pension and investment claims advice, wherever you may need. Here are our contact details. There you will also find our quick enquiry form – you can get in touch with us this way too.