Pensions are long term investments which are built up over time. But currently, in these uncertain and unprecedented times, people are under more financial pressure than many have ever experienced. Express.co.uk speaks to a financial planner about how you can use the COVID-19 crisis to boost your pension.
Since the coronavirus outbreak hit and spread around the world, stock markets have dramatically fallen by more than a fifth from their highs at the beginning of the year.
The most pessimistic forecasts suggest the value of dividends could drop by 60 percent, to less than £50bn from a record £100bn paid out last year.
The London stock market is dependent on these dividends which attract crucial investment.
Economic markets are forecast to remain in a heightened state of volatility for a long period, meaning financial sectors are impacted.
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More than four million jobs have been furloughed around the UK so far and 1.5 million Universal Claims have been submitted.
But some people are still hugely concerned about their pensions.
The Social Market Foundation thinktank has proposed scrapping the triple-lock guarantee on state pensions for the costs of battling COVID-19.
The thinktank’s director Scott Corfe told the Guardian this sacrifice could help share the crisis “fairly across the generations”.
Director and chartered financial planner Jeannie Boyle explained that the hardest hit pensions amid the COVID-19 crisis are those closest to retirement.
She said: “Most people now save for retirement through defined contribution pensions so our income in retirement is linked to stock market performance.
The impact will be greatest for those closest to retirement. Younger savers with many years until retirement are less impacted.
“Those thinking about retiring in the next year may need to review their plans.
“Older pension savers have been hit by stock market falls and the cut in annuity rates that follows an interest rate reduction.
“Anyone looking for a secure income in retirement will find this is now more expensive to buy.”
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As part of the Coronavirus Job Retention Scheme, the Government covers employer pension contributions up to three percent.
The scheme is due to last for just four months from March to June.
This means for these months, those who have employer-matched pensions are likely losing out on additional payments into their pension pot.
Ms Boyle added: “Some people might find they need to pay more into their pensions in order to retire when they planned or to have the income they anticipated.”
How can you boost your pension in these trying times?
According to Ms Boyle, the best way to boost your pension is to continue making your monthly contributions, even if the rate is reduced.
She said: “The falls in market values means that each £1 you pay in is buying more units – when stock markets rally you will benefit.
|This can be hard when there are so many other pressures on finances, but so many people don’t increase their payments after a ‘temporary’ suspension.
“COVID 19 has also shown us how vulnerable we all are. Keeping your death benefit nomination up to date can really help anyone dealing with your assets after your death.”
Experts have also advised those due to retire to defer their private pension if they can.
For those in a defined contribution scheme, it is beneficial to invest for longer to build up a larger pension pot for when you come to retire.
Deferring also means that you can continue to save as much as £40,000 a year into a pension and earn tax relief under current rules.
Choosing to defer for five weeks or more means that, once you do start claiming your state pension, you will receive more than you otherwise would have.
The additional time can also help you to manage your tax liability if you wish to avoid being pushed into a higher income tax bracket.
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