Tackling Pension Panic During The Coronavirus Pandemic
As people approach retirement, they begin to doubt their financial situation. They may question whether they’ve got enough money to sustain their desired lifestyle, whether their pension pot is working hard enough or when they will be able to access their pension.
In fact, these concerns are symptoms of pension panic.
In recent months, however, there appears to be a new surge of this panic spreading across the UK. This is the result of the coronavirus pandemic or, more specifically, the financial hardship brought about by the crisis.
Coronavirus and pension panic
Pension panic is not a new phenomenon. However, there has been an increase in over-55s worrying about the state of their retirement finances in the wake of the coronavirus pandemic.
Many consumers have seen the virus threaten their job security. As of mid-June, more than one in four UK workers had been furloughed, while over 2.6 million self-employed people had applied for financial support from the Government. Further, British business executives predicted that by the end of 2020, unemployment will leap to 3.5 million.
These statistics, confronting as they are, suggest that many consumers’ financial plans will need to be re-evaluated, with many people now worrying about the state of their pension and how it will support them when they stop working.
Consequently, many panicked consumers could be making dangerous financial decisions.
Scope for pension scammers
Unfortunately, pension scammers are keen to take advantage of pension panic.
Most consumers assume they are able to spot pension scams immediately. However, panic can cause warning signs to be easily missed. Indeed, research from Action Aid revealed that the first five months of 2020 saw more than 2,100 cases of fraud, with the victims losing a total of £5.14 million.
Fraudsters come in all shapes and sizes. Some offer “free pension reviews”, which always conclude that victims’ pension pots could be put to better use if placed in obscure and often unregulated investments. Others tempt people with early access to their pension (before the age of 55) without any financial ramifications. Consequently, victims are left with a tax bill of 55%, not to mention the money they lose via the scam itself. Some even try their luck illegally cold-calling potential victims to pressure them into handing over their pension.
Pension savers must remember that if they have any concerns about a company or website’s legitimacy, they can search the company on the Financial Conduct Authority’s (FCA) Financial Services Register. If the company is not on the register, it is likely to be a scam.
Overcoming pension panic
However, consumers could avoid such problems by seeking independent advice from an FCA authorised individual or company.
Seeking financial advice is a legal requirement for those wanting to cash-in a pension with more than £30,000. However, this does not mean that those looking to cash in smaller sums should dismiss its importance.
Consumers may be reluctant to seek advice for numerous reasons. Some think they are capable of creating their own retirement strategy and deem financial advice unnecessary. Others will enrol in their workplace pension scheme and give it no further thought. The vast majority rule out seeking independent advice because they believe it is too expensive.
All of these assumptions are false. Independent financial advice is vital when it comes to deciding the best financial option for each individual. What’s more, it does not come with a large price tag. The real question consumers should ask themselves is whether they can afford not to take advice.
An education in retirement finances
Retirement finance is never a case of one-size-fits-all. Consumers may have a firm grasp of the pension basics. However, ‘the basics’ might not help them to maximise the value of their pension pot.
It might seem logical for consumers to leave their pension pot untouched for as long as possible, in the hopes that its value will continue to increase over the years. However, this option might not be the best route for everyone and could cause them to lose out financially.
There are countless options worthy of consideration. Flexible access drawdown, for example, offer those over 55 the freedom to choose to take the tax-free cash, leave the balance of the fund invested, defer income, and take and vary income to suit their specific needs. Meanwhile, annuities – a retirement income product bought with a pension pot – could offer peace of mind by providing a fixed monthly income for the rest of their lives (or for a specified period which is agreed with an annuities lender).
The right retirement option depends on an individual’s specific needs, and there-in lies the value of an independent financial advisor. They review all aspects of an individual’s financial circumstances and clearly explain all the options available. Armed with comprehensive knowledge, a consumer can then go on to make the right decision to suit their needs.