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.
As many of us face a new working life - how can you keep your retirement savings on track?
Almost everyone’s working life has been affected by the pandemic, one way or the other.
For the worst hit, their job may not have survived lockdown. Many others have been living life on furlough as their employer waits to open up again, while millions have been adapting to working at home.
If the pandemic has meant a change to the way you work - or even a change of job or early retirement - it’s important to understand how this will affect your retirement plans. Action may be required if you want to continue your savings at pre-pandemic levels.
Recent research from Fidelity Personal Investing1 showed that 38% of people who were or are furloughed have made changes to their retirement plans as a result of Covid-19. Based on HMRC2 figures of those furloughed, that’s potentially 3.6million workers who have had to make changes to their retirement plans.
If your job has been affected, here’s what you need to consider.
If you’ve been made redundant
If you have been a member of a workplace pension scheme via your employer and you lose your job, it’s likely that you will no longer be able to continue saving through the scheme.
Your retirement saving may have to remain on hold until you find a new job, but there are steps you can take to ensure the retirement savings you have are positioned correctly until that happens. You should be able to check the status of your existing pension savings with your scheme administrator, including how much you have saved, how your money is invested and the charges you pay to invest.
Now could also be a good time to consider consolidating your pensions - not just the pension from your most recent employer but from any job you’ve had in the past. This can be done by moving workplace pensions into a SIPP - a Self-Invested Personal Pension. The great benefit of consolidating pension pots is that they become far easier to look after. You can view your account online so that you always know the value of your total savings, meaning you have a better idea of the level of pension you’re heading for in retirement.
Another plus is that you have far greater control over how your pension money is invested. SIPP providers such as Fidelity Personal Investing offer a wide universe of investments to suit investors of all levels. This compares to the typically limited selection of fund choices inside most workplace schemes.
Remember to check if any of your existing pensions contain valuable benefits that will be lost if you transfer away. If this is the case, it’s likely that it won’t be in your best interest to transfer.
If you’ve been placed on furlough
The current furlough scheme protects 80% of your regular wages, up to a maximum of £2,500 per month. The furlough scheme specifies that some employer pension contributions should continue but be based on levels of furlough pay, with employers only required to pay in amounts worth 3% of salary in accordance with the rules for auto-enrolment.
If furlough means your earnings are lower than they would normally be, or if your employer would normally pay in more than 3% on your behalf, then the amounts going into your pension may have fallen. You should be able to find out if this is the case from your scheme administrator.
Consider whether you want to make additional payments into your pension to make up for any shortfall.
If you’re close to retirement age
Those who were already close to retirement age when the pandemic struck may be wondering if they should accelerate their plans. If you’re wondering if now could the time to begin winding down the hours you work, or even to stop working altogether, it’s vital that you take stock of your retirement savings to work out the kind of retirement income you could be headed for.
Fidelity’s MyPlan tool is an online calculator which allows you to enter details like your age, earnings and level of savings to work out the kind of pension pot you might be able to expect in the future.
If you’re considering retiring early, there’s plenty of information to help with retirement planning on our website.
If you’re considering self-employment
For some people, the more flexible ways of working that have arisen during lockdown may prompt them to wonder whether they would prefer to be self-employed, and ditch the office altogether.
If you’re planning on going self-employed don’t forget to factor pension saving into your financial plans. You won’t have an employer who can make contributions on your behalf but you can still take advantage of the tax breaks available on pensions. For example, a £1 contribution today costs you 80p if you’re a basic-rate taxpayer, as little as 60p if you’re a higher-rate taxpayer and 55p if you pay additional-rate tax. Rates of tax relief for Scottish Residents may differ to the rest of the UK. The relief for higher rate and additional rate tax often has to be claimed for via a self-assessment tax return - in which case you would get the benefit through an adjusted tax bill the following year.
If you’re looking for a new job
If the pandemic has left you looking for a new job remember to consider any pension package on offer, as well as the salary and other benefits you may be offered.
As with those out of work through redundancy it can make sense to consolidate pensions from previous employers at this stage. That way you will be able to keep on top of your progress and, if you feel like you are falling behind your retirement targets, you can work to up your contributions when your new job begins.
There’s more useful information on financial considerations when changing jobs here.
Important Information: Withdrawals from a pension product will not normally be possible until you reach age 55. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information and our guidance tools are not a personal recommendation for any particular investment. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals. It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our transfer factsheet. If you are in any doubt whether or not a pension transfer is suitable for your circumstances, we strongly recommend that you seek advice from an authorised financial adviser.
2Source: HMRC figures state that 9.6million jobs have been furloughed in the UK as of 15th November 2020. Opinium Research commissioned by Fidelity International based on a sample of 3,000 UK adults during October 2020 shows 38% of people who were or are furloughed have made changes to their retirement plans as a result of Covid-19.