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Don’t let coronavirus derail your financial future

The COVID-19 pandemic has touched virtually every aspect of our lives, not least of which is how we save for retirement. And while the number one priority is keeping our families and ourselves safe and healthy, the next topic on most people’s worry list is the financial impact, especially if the situation doesn’t improve quickly.

As global markets have been highly volatile, the planning towards achieving our retirement goals may now require readjustments. The current situation has led to one in ten people reducing or stopping saving into a pension because of the pandemic.

Most financially affected

Those who already struggle to put away for retirement are most financially affected by COVID-19, including self-employed, part-time and younger workers. More than three million people have reduced or stopped completely their pension payments as a result of the COVID-19 crisis, new research has revealed[1].

10% of UK adults who have a pension and are not yet retired will need to work for longer or significantly increase how much they save later on in order to make up the shortfall, the findings of the research highlight. Those who don’t could potentially face pensioner poverty in later life.

Short and long-term personal finances

Conducted in the midst of the lockdown, the research looks at how the crisis is impacting the short and long-term personal finances of the nation. It revealed that almost a quarter of workers (24%) are worried about paying for essentials like food and energy.

Another 20% are concerned about paying the rent or affording their mortgage. In total, almost one in five (19%) say they have seen their income fall because of coronavirus. These short-term financial concerns are impacting long-term saving, with 10% reducing pension contributions or stopping saving completely.

Painful lack of financial resilience

The COVID-19 crisis has revealed a painful lack of financial resilience in the UK, leaving millions of people exposed with little or no safety net to fall back on. As the full impact of this crisis becomes clearer, more people may feel forced to pay for today’s essentials with tomorrow’s savings. However, this will only prolong the economic pain of coronavirus and could result in more people facing poverty in retirement.

Those who have traditionally struggled to save adequately for retirement before now are also being disproportionately affected by COVID-19. Two in five self-employed workers (43%) have seen a drop in their income, almost three times the proportion of employees (16%).

Not saving anything towards retirement

While the Government’s Self-employment Income Support Scheme will help cover some of these lost earnings, those who have been self-employed for fewer than two years will receive even less support.

As a result, one in five (19%) self-employed workers have felt the need to pause or reduce pension contributions. This is on top of the 41% of self-employed people who in 2019 said they were not saving anything towards retirement.

Reduced or stopped pension contributions

Part-time workers also tend to be less well prepared for retirement, and now three in 10 (28%) have lost their job or been furloughed due to coronavirus, compared with 18% of full-time workers. Because of this, part-time workers are two-and-a-half times more likely to change their long-term savings habits than full-time workers (15% as opposed to 6%).

The nation’s youngest workers are also sacrificing their long-term financial plans. Almost one in five (18%) 18-24-year-olds have reduced or stopped pension contributions. Of this age group, 7% have actively moved their pension to a lower risk investment fund, despite being many years away from retiring.

Women who are not yet retired are more worried about paying for essentials than men (27% as opposed to 22%), and are more concerned about paying the rent or mortgage (22% as opposed to 18%).

Source data:
[1] Research was carried out for Scottish Widows online by YouGov Plc across a total of 2,251 adults aged 18+. Data is weighted to be representative of the GB population. Fieldwork was carried out 11–12 May 2020. More than 3.1 million (3,135,601), calculated as 5.9% of the adult population (52,673,433), have reduced or stopped paying into a pension (equal to 10% of workers who have a pension).

Content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements or constitute a full and authoritative statement of the law. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles

Preparing ourselves for life to be really strange for some time

The only constant in life is change, which is why individual financial life planning should not be a one-off exercise. Reviewing your finances regularly is essential if you want to stay on track to meet your financial goals. Making sure your finances are in the best possible shape will also make sure you stay on course to achieving everything you want.

Everyone has been affected by the coronavirus (COVID-19) pandemic and the measures needed to control it. It’s likely that coronavirus will loom over us until we have an effective vaccine, so we need to prepare ourselves for life to be really strange for some time.

Changes in your financial circumstances

As situations in our lives change, it’s important that our financial plans are updated by carrying out regular reviews. One of the main reasons why you should review your financial plan regularly is to reflect any changes in your financial circumstances, be it internal or external. You’ll also have different goals and priorities as you enter different stages of your life. So where are you currently?

Early career

You’re likely to be just starting out in your career and might be feeling a little unsure how to implement a budget or manage and maximise your cash flow. A house deposit may be on your horizon, or perhaps you are considering your investment options, but you’re just not sure how to get started. It’s never too early to start looking at your financial position.
When you first begin earning an income, budgeting is the critical financial skill that you need to master. Developing a suitable budget and building the discipline to live within your income so that you don’t fall into a debt trap is key.
Once you learn to contain your expenses to available income, you should start building savings into your budget. The emergency fund will have the first claim on your savings, and this is an urgent and important task.

Initiating some investments for retirement is another key task at this stage, even though the goal may seem too much in the future to be relevant now. Investments for other goals are optional at this stage and can commence once your income and savings stabilise.

Middle-aged

This is the stage that you’ll find the most demanding. You’re settled in your career, a young family means your expenditure has increased, and you are looking to repay your mortgage fast while also funding your children’s education and/or childcare.
Receiving professional financial planning advice will help you manage an increasingly complex budget, as well as looking to ensure your family is protected in the event of something happening to you. Of course, you may also want to know if you can afford an annual holiday to enjoy the family you now have.

Implementing a plan early in this stage will allow you to reap the benefits later on in life, as well as providing security for your family and any other dependents.

Pre-retirement

You may now be looking to leave the workforce soon and want to find out if this is financially possible. Your children are now adults and your expenditure has steadied, so you may be starting to look seriously at your ideal retirement lifestyle.
By managing your personal finances prudently so far, this stage of your life will be the golden stage for your finances. Your income is higher and seeing an upward growth trend, while your expenses have stabilised, resulting in growing savings.
Being mindful of expenses is important even at this stage, and the focus of budgeting is to maximise on savings and investments. Managing your investments is critical in this period. Many of your goals are close to being funded, and the investments may need to be rebalanced to reflect this.

Your life and other protection requirements should be updated and aligned to your current and future situation. Now that you have accumulated wealth, it’s time to consider how you would like to eventually distribute your estate in the most tax-effective way.

Retirement

You have finally left the workforce and are looking at how to maintain a steady income, discovering what benefits you may be entitled to, and how to maximise these.

Budgeting becomes the focus of finances once again during retirement. The object now is to control expenses to stay within the available income. Managing your investments to generate income and protect it from rising inflation also becomes a primary investment activity at this stage.

Adequate health protection is critical, as health costs can throw your income off the rails. Life insurance may be relevant only if it is required to protect retirement income for your spouse, and debt should not be a big part of your finances at this juncture.

Content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements or constitute a full and authoritative statement of the law. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles

Ensure your future income will allow you to enjoy the lifestyle you want

Preparing for retirement is like getting ready for a journey – it never goes quite as planned. But the better the plan, the better the outcome. When things go wrong, you want to have the flexibility to adapt to changing circumstances. You never know what retirement will be like until you get there.

It’s also important to remember that retirement is not a single event. It is a process that begins long before you leave work and continues for the rest of your life. Retirees finally have the freedom to choose how to spend their time. While some people want to relax after a lengthy and stressful career, others are ready to move on to the next adventure.

The simple fact remains that those who prepare a financial plan are more likely than those who don’t to have a realistic idea of their retirement income and whether it will meet their needs. A personalised financial plan also means that if your projected income falls short of your requirements, you’ll likely have a backup strategy to help make up the difference.

Enjoy a new lease of life

But retirement is a challenging new phase in life. While it ranks high on the scale of stressful life events, it also provides the opportunity to enjoy a new lease of life. You are likely to enjoy the freedom to develop new interests but on the other hand you may feel lonely, isolated and bored at times. An important step is to plan your goals and work towards them.

Unfortunately sentiments about a lack of preparedness for retirement go hand in hand with a lack of knowledge about what someone actually needs. That’s why a professionally prepared financial plan helps determine, with a greater degree of accuracy, what it will actually take to facilitate a chosen retirement lifestyle and goals.

Chosen retirement lifestyle

Then, ask yourself what income you will need to accomplish your chosen retirement lifestyle and what factors might affect your ability to fulfil those wishes. You may find there are non-financial factors that have a significant impact on whether or not you achieve your objectives.

However, planning for an uncertain life expectancy in retirement unfortunately means some individuals may face the possibility of running out of money before they die, as they could save less during their working life and spend more in retirement than is appropriate for their circumstances.

Main questions to consider

One of the main questions you need to consider is, ‘What do you anticipate to be your major sources of expenditure in your retirement years?’ The answer greatly depends on your circumstances, your family and your retirement plans. Many retirees aim to travel in retirement, at least for a portion of the time. In retirement you may be planning to travel as tourists throughout the world, to visit family or to enjoy holiday properties located in the UK or elsewhere.

It’s also a time when you may want to carry out some renovation work on your home, or move to the country or city, start a business, spend more time with friends and family, go back into education, learn a new language or to play an instrument, start a new hobby, take up a new sport, join a gym or fitness group, or do absolutely nothing.

Content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements or constitute a full and authoritative statement of the law. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles

Traditional spending and saving habits have been turned upside down

Household finances, including spending and saving patterns, have deteriorated drastically since the coronavirus (COVID-19) lockdown, despite unprecedented Government support. Traditional habits have been turned upside down, and household budgets that guided our incomings and outgoings before the pandemic are no longer valid.

Analysis of consumer sentiment alongside official household spending data[1] reveals the inability to save is the biggest current concern for UK adults (26%), as earnings have been disrupted for millions of workers. UK adults also cited economic and stock market volatility reducing the value of their pension or investments to be a key concern (23%), as well as an inability to pay household bills (19%).

Typical UK households

However, at the same time, spending on non-essential items has fallen as a result of government instructions to stay at home. This means that typical UK households could be spending 29% less per week in total during lockdown compared with ‘normal’ times.

But it is estimated that increased spending on items such tea, coffee, chocolate and energy consumption and pastimes like TV subscriptions (Netflix, Sky) adds around 6% to the average household’s weekly spending.

Reduced or zero spending

This is likely to have been significantly offset by reduced or zero spending on leisure pursuits halted by the lockdown. These include holidays, house moves, eating out, clothing, hairdressers and trips to the cinema, theatre and museums, potentially reducing the typical household’s average weekly spending by 35%. Overall, this creates a net saving of 29%[2].
The data highlights that female savers look to have been disproportionately affected during the lockdown, as workers in sectors such as hospitality and retail are more likely to be younger females[3].

Uncertain financial future

Younger people across the board also face a significant challenge. Those under 34 typically struggle to save under normal circumstances, but the current conditions have exacerbated this, as this age group continues to come up against large costs although they face a more uncertain financial future.

For example, they typically spend a greater proportion of their budget on housing, and bills, which remains unchanged. This is likely to have been a major influence on demand for mortgage payment holidays.

Saving and spending patterns

There have also been regional differences across the country as household saving and spending patterns change. People living in London are the most likely to feel the inability to save is their biggest current concern (30% as opposed to a UK average of 26%). Almost half of all Londoners lack confidence in their own financial situation at the moment (48% as opposed to a UK average of 38%).

When asked whether they have more or less money to spare at the end of the month than before lockdown, adults living in Plymouth were most likely to be ‘lockdown savers’ while those in Brighton were most likely to report ‘lockdown losses’. 

Navigating unforeseen circumstances

Many factors will determine how different parts of the UK are faring financially, including how much of the local economy is based on tourism, retail and leisure and how much it relies on public transport. Many households continue to navigate through unforeseen circumstances. Now is the time to keep saving and spending habits under careful and regular review. It is good practice to weigh up what we are spending each month, and how much more or less we are saving.

If you feel as if you have more cash to spare at the end of the month during this time, it’s important to consider a good home for it. Maintaining or even increasing pension contributions could be an attractive longer-term option for savers who can afford to do so, so that money you would otherwise have paid in tax on your earnings goes straight into your pension pot via tax relief. Providing you can access other funds at short notice if you need them, then small extra savings today could make a big difference tomorrow.

Source data:
[1] Research of 2,020 UK adults conducted on behalf of Aviva by Censuswide, 7–11 May 2020. All figures featured in this release refers to this dataset, unless otherwise stated
[2] The 35% saving, coupled with the 6% of additional expenditure, creates a potential 29% overall saving in households’ typical expenditure each week
[3] www.ifs.org.uk/publications/14791

Content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements or constitute a full and authoritative statement of the law. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

COVID-19 pandemic outbreak causing many of us to think about our own mortality

The terrifying daily death tolls resulting from the coronavirus (COVID-19) pandemic outbreak may be causing many of us to think about our own mortality, particularly if we’re responsible for a family or business loans. Increasingly we’re having to think about things we haven’t thought about before – including the unthinkable.

Understandably, we would rather not think of the time when we’re no longer around, but this crisis has highlighted the importance to protect the things that really matter – like our loved ones, home, lifestyle and business – in case the unexpected happens.

The outbreak of the coronavirus may mean you have concerns about your life insurance and whether you’re covered. If you have life insurance to provide for those left behind or to cover business loans after your death, it’s important to keep paying the premiums, even if you’re tempted to put it on hold to cut costs. You could lose your cover and may struggle to find the same level of cover if you start another policy later on.

Projecting ourselves into the future to see what‘s around the next bend

For many of us, projecting ourselves into the future to see what‘s around the next bend is not an easy thing to do. However, without thinking, we insure our cars, homes and even our mobile phones – so it goes without saying that you should also be insured for your full replacement value to ensure that your loved ones and business are financially catered for in the event of your unexpected death. Making sure that you have the correct type and level of life insurance in place will help you to financially protect them

Life insurance provides a safety net. Ultimately, it offers reassurance that your family and business would be protected financially should the worst happen. We never know what life has in store for us, as we’ve seen in recent weeks with the outbreak of COVID-19, so it’s important to get the right life insurance policy. A good place to start is asking yourself three questions: What do I need to protect? How much cover do I need? How long will I need the cover for?

Supporting your family and business financially when you’re no longer there for them – what questions you need to ask:

Who are my financial dependents – my husband or wife, registered civil partner, children, brother, sister, or parents?
What kind of financial support have I provided for my family?
What kind financial support will my family need in the future if I die prematurely?
What kind of costs will need to be covered, such as household bills, living expenses, mortgage payments, educational costs, debts or loans, or funeral costs?
What amount of outstanding business loans do I have now?

The correct level of life insurance will make sure they’re taken care of financially

It may be the case that not everyone needs life insurance. However, if your spouse and children, partner, or other relatives or business depend on you to cover the mortgage, other living and lifestyle expenses, or business loans, then it will be something you should consider. Putting in place the correct level of life insurance will make sure they’re taken care of financially.

That’s why obtaining the right professional financial advice and knowing which products to choose – including the most suitable sum assured, premium, terms and payment provisions – is essential.

At different stages in your life, your need for protection will inevitably change

There is no one-size-fits-all solution, and the amount of cover – as well as how long it lasts for – will vary from person to person. Even if you consider that currently you have sufficient life insurance, you may probably need more later on if your circumstances change. If you don’t update your policy as key events happen throughout your life, you may risk being seriously under-insured.

As you reach different stages in your life, the need for protection will inevitably change. How much life insurance you need really depends on your circumstances – for example, whether you’ve had a mortgage, you’re single or have children, or you have business loans that you are liable to pay.

Content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements or constitute a full and authoritative statement of the law. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles