Pensions can be very complicated things to manage at the best of times but coronavirus has made it even more difficult. The disease is impacting financial assets in ways no one could foresee and it has forced the government and other public bodies to make unprecedented changes.
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One of the latest things to emerge from this is a comprehensive guidance package from the UK’s leading pension and financial regulators.
Over the last week or so, a “COVID-19 and your pension” document has been released which provides guidance on every single pension concern.
The guidance is provided jointly from the Pension Protection Fund, the Financial Conduct Authority, the Financial Services Compensation Scheme, the Money & Pensions Service, the Pensions Ombudsman and the Pensions Regulator.
Within the guidance, each regulator provides their individual insight on what should be done but each section tends to be structured around a Frequently Asked Questions (FAQ) format.
There is also a big focus on how to protect yourself from scammers – a prevalent problem at the moment.
There is huge range in what is covered in the guidance but savers and retirees can find helpful answers to the following kinds of questions:
- What happens to my pensions contributions if I’ve been furloughed?
- Is my pension protected by the PPF?
- How can the Pensions Ombudsman help me?
- How do I protect myself from pension’s scams?
- Is it safe to move my pension?
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The guidance has been welcomed by many within the private sector, as Svenja Keller, the Head of Wealth Planning at Killik & Co, highlighted the direness of the situation: “One of the realities of the Coronavirus crisis is that those who were looking to retire in the next few years have been significantly impacted, with recent figures indicating over a million workers are currently in this situation.
“This is because the values of their retirement pots will have fallen, but also because they may have less opportunity to save now due to job losses or reduced earning potentials. It’s an incredibly worrying time, knee-jerk reactions may take over and more are vulnerable to scams – such as the temptation to cash in a pension before its time or drawing out more than 25 percent tax free cash.
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“This cross-regulator guide provides much needed clarity and guidance to steer people through the next few months, and its important people ensure they have all the information in front of them before making any major decisions that could impact their future financial security.”
Mr Keller went on to provide guidance himself on what people should do with their pensions at the moment: “When looking at the wider options (i.e. not just pensions) in more detail, the main tool that can help someone who is close to retirement during COVID-19 and in general is cash flow planning.
“The tool projects income, expenditure, assets and liabilities over the long-term to show whether the desired lifestyle is affordable.
“Normally, future expenditure such as long-term care costs and other planned foreseeable calls on capital are included and the model can run various scenarios to show what the options are. For example, different retirement ages, different expenditure levels in retirement, different levels of risk taken with investments, a possible future downsize and gifts to other family members.
“In the current climate, cash flow planning can be helpful to show whether someone can still afford to retire at the same time and / or with the same level of retirement expenditure, modelling the different scenarios in graphs. Some individuals may be comfortable working for an extra few years, whereas others feel better about reducing the planned expenditure but still finishing work at the same time.”
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