Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
How do you keep your savings and investments on track when you are dealing with a drop in your regular income? That is the question currently being faced by so many people who have seen their home and working lives dramatically altered since the start of the pandemic.
And when it comes to the answer, the difference between the generations is marked. There is a stark generational divide occurring. While over-55s have had decades of working life in which to set themselves up financially, by saving and investing and paying into a pension, it is the youngest workers who have not had the ability to yet do that who are feeling the most exposed in the current climate.
Fidelity’s Investor Survey, which captures UK investor sentiment since the outbreak of the Coronavirus pandemic, reveals that those aged 18-34 are most likely to be worried about job security (61%), compared with one in ten (11%) of those aged over 55.1
And it’s little surprise. Two-fifths (41%) of all working investors have seen a drop in their regular income since the start of the pandemic, with average earnings falling by £636 a month. However, among those whose income has been negatively affected, those aged 18-34 are most likely to have experienced a change in their working circumstances; more than half (53%) are likely to have seen their hours and income reduced, while a fifth (22%) have taken a pay cut while continuing to work at the same levels.
That is not to say older generations are not feeling the effects of the pandemic on their financial plans. As many as 71% of those intending to retire in the next five years have been forced to re-think their plans.
However, the biggest take-away from this survey is how much having a financial buffer and sound financial plans in place helps shield us, to a large extent. And don’t forget your pension plans. As we have seen already, the pandemic has given many of those who thought they were nearing retirement a wake-up call. Paying in little and often is the way to stay on track and keep your future financial security in place.
And that is especially true for women. If you have seen your earnings reduced or cut altogether during this time, this is a situation that many women, in particular, are likely to find themselves going through again. While not exclusively a female issue, the fact is that despite shared parental leave, women who have families, still tend to bear the brunt of the childcare. Taking time out of work, or taking a part-time role in order to juggle your family responsibilities can mean that all too often your future financial security suffers. The same comes from taking time out to care for elderly relatives.
While the younger generation may not have had time on their side to prepare them financially for what is happening today, younger investors do have time on their side going forwards, and however little they’re able to put away now will help to make a difference to their long-term goals.
Saving even a small sum will pay dividends in the future. Putting just £50 a month into your ISA will start to create a savings pot for the future that over time, thanks to compounding, will have the potential to grow into something much bigger.
For women in particular, as Fidelity’s Women & Money survey showed, just 1% extra paid into your pension each month, as soon as you start working, can help bridge the gap when it comes to the all-too-real gender pension gap. The fact is that there is still an 11% difference, on average, between the pensions of men and women of the same age when they reach state retirement age. So that extra 1% or around £35 a month on average, contribution into your pension pot, either into your workplace pension or alternatively a SIPP, will help make you financially secure decades down the line.2
With lockdown meaning that so many of the things we used to do are off-limits, at least for the time being, now is a good time to see how your reduction in spending will have had a positive effect on your outgoings. If you have made savings on memberships you would have otherwise paid out, trips and weekends away you would have made, even trips to the hairdresser that have all been scrapped, taking the positives from the current negatives and putting them to good use for your future will pay off.
That way, if nothing else you can look back on the pandemic in years to come and when you’re asked “what did you do in lockdown?” you can think back on how it was a real chance to re-evaluate your spending and actually focus on getting yourself financially set-up for life.
1 Fidelity International, June 2020, based on a sample of 1,000 independent UK investors during May 2020.
2 Fidelity International, May 2018
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment on ISAs and SIPPs depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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