Pension warning: Pensions and savings could be hard hit in the UK coronavirus crisis

As a result of the crisis, many businesses are being forced to slash their dividend payouts, meaning pension funds and savers could lose out on a significant sum. The outbreak has caused stock markets to fall considerably, with volatility likely to remain for the foreseeable future. In order to survive this difficult time, a number of companies have scrapped their standard plans to offer payouts to shareholders, or put these on hold in favour of other priorities.


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It is estimated nearly £85billion could therefore be lost in dividends, with a number of companies choosing to axe their arrangements. 

These include consumer giants such as Sainsbury’s, Next, Rolls-Royce and BAE Systems. 

According to financial services company AJ Bell, more than 300 firms have already cut dividends of over £25billion. 

In the years prior to the coronavirus outbreak, Britain’s largest companies were found to have handed out close to half a trillion pounds in dividends and share buybacks.

The Common Wealth thinktank revealed approximately £400billion was paid in dividends, with £61billion in share buybacks by the biggest 100 companies in the UK between 2011 and 2018.

However the financial circumstances brought about by the coronavirus have been difficult to bear, meaning the effect could be absorbed by savers.

According to data from the Link Group’s Dividend Report, dividend payments last year stood at £98.5 billion, however the organisation sees dividends falling to £61.4 billion in 2020 in a ‘best-case’ scenario analysis. 

In its worst-case estimate, over a two year period from 2020 to 2021, investors will receive £84.5billion less in income than they would have at 2019 levels.

Out of the UK’s 10 biggest payers of dividends, four have now chosen to cut or freeze payments due to COVID-19. 

Royal Dutch Shell, HSBC, RBS and Lloyds Banking Group announced suspension of dividend payments and share buybacks for the 2019 and 2020 financial years.

The decision was reached after lengthy discussion with the Bank of England.

Many Britons choose to invest their pensions in shares of large companies, as the company pays dividends into the fund, and investors can potentially increase the value of these shares. 

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However, the shock to dividends alongside the stock market has produced a potentially cataclysmic effect for investors.

The share value, negatively affected by stock market dips, and the withdrawal of dividends eliminates this income stream for many Britons as a result. 

Companies including BP, GlaxoSmithKline, AstraZeneca and British American Tobacco, have, for the time being, seemingly maintained their dividend payments.

However, with other companies pulling out of the scheme, it is as of yet unclear as to what the next step for these companies, and their investors, will be.

It is likely any move to cut dividends will be temporary, meaning pension funds and savers will be protected in the long term.

Those who are looking to protect their pensions from the peaks and troughs of the market are advised not to take any rash decisions about cashing in at this moment in time, given the fact the markets are still suffering.

Claire Trott, Head of Pensions Strategy at St James’s Place, said: “Market volatility is normal, as is the feeling of being overwhelmed by the value of your investment portfolio moving up or down. 

“But it’s worth remembering that market rises and falls are part of investing. No one likes to lose money, but history suggests that selling is usually an inappropriate response to unfolding events.”

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