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With redundancy on the cards, the big question for many is “can I afford to retire?”

Jonathan Watts-Lay, Director - WEALTH at work

There is no doubt that COVID-19 has impacted the financial lives of many people, especially those planning to retire or those who find themselves facing an unplanned early retirement.

Latest research from the Centre for Ageing Better and Learning and Work Institute estimates that over a quarter of a million (377,000) of the over 50s are at risk of losing their jobs, and that they are far more likely to slip into long-term unemployment, with just one in three (35%) returning to work quickly, compared to two in three (63%) workers aged 25-34.

Can I afford to retire? – Employees who are nearing retirement age and considering retiring may find that it’s more achievable than they think. They may not realise that they could use the tax free cash from their pension to pay off any outstanding loans and mortgages, and without these debts they may not need as much as they think to afford retirement. For example, someone earning £30,000, once they have paid their income tax (£3,020), national insurance (£2,460), pension contributions (£2,400), mortgage (£6,000) and loans (£2,400), may end up with a disposable income of around £13,720 p.a. Realising that you may only need a retirement income of less than half your salary to maintain your standard of living can be an eye opener and make retirement a more realistic option for employees.

How do I maximise my retirement savings? – Instead of using their pension pot as a source of income, many people would be better off using other taxable savings and investments first. If employees are able to do this, it would allow their pension savings to benefit from a longer period to hopefully grow in its tax-free environment. Redundancy pay can also be used to boost pension savings, which will be particularly beneficial to employees approaching retirement.

Do I need regulated financial advice? – Getting regulated financial advice can make a real difference, especially in these concerning times. The cost of advice can put some employees off but usually the benefit far outweighs the cost, as an adviser will look at all assets, work out the most tax efficient way to fund retirement and then put a bespoke plan in place. It’s important for employees to ensure they review their plan annually as circumstances change.

How will I be able to afford unexpected expenses (e.g. car break downs) and future care costs? – Some employees we speak to are really concerned with the impact coronavirus has had on their existing investments and as such, worry about how they are going to cover unexpected expenses in retirement, from the car breaking down to the uncertainty of finding the money for future care costs. The reality is that most people are sensible in retirement and adjust their spending according to what they need. Only 4% of people aged over 65 live in care homes in the UK, rising to 15% of those aged over 85[1]. So whilst this is something for employees to keep in mind with their financial planning, it isn’t something to necessarily lose sleep about. However, getting regulated financial advice on an annual basis can help them to keep their plans on track as their situation changes.

How do I protect myself from scams? – Unfortunately scammers often see turbulent times like these, when people are concerned and vulnerable, as an opportunity! In July, Action Fraud reported that victims of coronavirus-related scams had lost over £11million, with it previously stating that pension scams had been among the most common type of fraud during the crisis. Victims of pension scams can be left approaching retirement with a significantly reduced income and in some cases, entire life savings can be lost. So, whatever employees are planning to do with their retirement savings, it’s vital to check whether the company that they’re planning to use is registered with the Financial Conduct Authority (FCA) https://register.fca.org.uk/. They can also visit the FCA’s ScamSmart website which includes a warning list of companies operating without authorisation or running scams fca.org.uk/scamsmart. Regulated financial advice can also offer added consumer protection should anything go wrong.

Jonathan Watts-Lay, Director, WEALTH at work, comments, “With many redundancies already on the cards and with those over 50 more likely to be affected by this, taking retirement might be a real consideration. This could be a daunting prospect but depending on their circumstances, affording retirement could be more achievable than employees think.

Many employees we speak to are really concerned with the impact coronavirus has had on their existing investments and as such, worry about affordability including how to cover unexpected expenses in retirement, from the car breaking down to the uncertainty of finding the money for future care costs. Also, it might sound obvious but the longer you live, the more money employees are going to need but this can be difficult to predict.

Whilst it can be challenging to deal with this uncertainty, what is certain is the more employees plan for retirement and review their plans as their circumstances change, the more likely that they will be able to deal with all eventualities. This is why it is so important for employees approaching retirement to get the financial support required through financial education and guidance in the workplace, and ideally regulated financial advice, so they understand their financial situation and make the most of their retirement savings.”

[1]  According to LaingBuisson (2018) there are 11,109 care homes for older people and those living with dementia. Of these, 42% (4,632) were registered nursing homes. https://www.mha.org.uk/news/policy-influencing/facts-stats/

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