We are living in incredibly challenging times, and unfortunately, consumers across the UK are feeling the financial aftershock of the coronavirus.
Unemployment rose to 3.9% in the second quarter of 2020. Whilst this is lower than analysts’ predictions of over 4%, this will offer little comfort to those who have found themselves being made redundant and their household income drying up completely.
This is particularly concerning for older members of the workforce. Indeed, a recent survey of over 2,000 UK consumers conducted we discovered that almost one in ten (9%) of consumers aged 40-67 have been forced to take early retirement as a result of the pandemic, despite not being financially prepared.
Naturally, the main concern for many consumers will be whether they can safeguard their financial futures…
Keep calm
With market volatility seemingly eroding the value of many people’s pension investments, it will be tempting for many consumers to withdraw their pension pots in order to preserve its value.
Indeed, our aforementioned research revealed that one in eight (12%) of consumers have already withdrawn money from their pension pot as a consequence of the virus, without seeking financial advice. However, making major financial decisions based on short-term incidents could have disastrous long-term consequences.
Instead, consumers must consider the bigger picture. Markets are delicate, and can react dramatically to events, but they do recover. For example, the sudden shock of the UK voting to leave the EU in 2016 saw markets plummet; however, they restabilised over time.
So, if consumers have several years before they retire, there will be time for the market, and the value of their pension pot, to recover. This additional time will also offer an opportunity to review and update their retirement strategy, with the help of an independent financial adviser. Developing a COVID-proof retirement strategy will certainly help consumers to overcome pension-related panic.
Alternative options
However, this approach might not be an option for some. After all, those who are over the age of 55 and already retired will likely be relying on their pension as their main source of income. Luckily, there are options for those already at this stage of their lives.
Retirees may need to accept that, for a short period of time, they may have to take on a lower income than they initially expected. Whilst household budgets may become tighter as a result, it will mean that more of their pension is left to regain its value as the markets recover. However, this does not mean that consumers must live on a shoestring budget, until that time comes.
Instead, they could consider alternative income options. Equity release, for example, allows consumers the opportunity to quickly access the cash tied up in the primary home. Provided that the retiree is over the age of 55 and owns the property in question, this could be a viable solution to easing cash flow issues.
Equity release comes in two main forms. The first is a lifetime mortgage, where consumers are able to take out a mortgage on their property, whilst retaining ownership. This could be an attractive option for those who wish for their children to inherit the property when they’ve died.
The second form is home reversion. This option offers the retiree a lump sum, or regular payments (depending on what best suits their needs) in exchange for part or full ownership of their property. This option could be particularly suitable for older retirees, as the older the consumer, the more money they will generally be able to release from their home.
These options have their various benefits and drawbacks; they will inevitably suit some consumers more than others. So, it is vital to seek independent financial advice before making a final decision.
These are testing times, and many consumers are understandably concerned about their financial futures. It is vital not to make any snap decisions in response to this temporary volatile period. Instead, consumers to seek independent financial advice. Advisers will be able to help pre or at-retirement consumers to develop a sustainable retirement strategy and, ensure that they are not left to struggle through financial worries alone.