How COVID rocked the pensions landscape

The coro­n­avirus pan­dem­ic has shat­tered lives and left many to pick up the pieces of their bro­ken finan­cial future. A YouGov poll with Smart Pen­sion found more than one mil­lion 55 to 64 year olds are now set to delay their retire­ment due to the pan­dem­ic. 

From mass unem­ploy­ment, fur­loughs, reduced income and volatile glob­al mar­kets, a wave of eco­nom­ic hard­ship has left many with shrink­ing incomes and pen­sion pots. How­ev­er, the last year has also strength­ened finan­cial resilience across demo­graph­ics, as peo­ple begin to pre­pare for an uncer­tain future, not just a rainy day. 

Over-50s facing job insecurity

Once val­ued as the safest way to ensure a smooth retire­ment, atti­tudes towards pen­sions had their ups and downs long before the pan­dem­ic. While many baby boomers tra­di­tion­al­ly enjoyed lucra­tive pen­sion plans, a sur­vey by Pen­sion­Bee of 1,000 peo­ple aged between 55 and 70 found 40 per cent of work­ing respon­dents would want access to their mon­ey if they became unem­ployed, with 22 per cent say­ing they are more like­ly to make a with­draw­al due to the pan­dem­ic. 

And these find­ings seem to be borne out as a record num­ber of over-55s have dipped into their pen­sion pots due to the cur­rent uncer­tain cli­mate. Accord­ing to the lat­est HM Rev­enue & Cus­toms fig­ures, 360,000 peo­ple with­drew £2.4 bil­lion in flex­i­ble pay­ments from their pen­sions in the fourth quar­ter of 2020, a 10 per cent increase on Q4 2019. 

For­mer busi­ness con­sul­tant, Steve Jenk­ins, aged 60 from Man­ches­ter, is an exam­ple. “The pan­dem­ic, cou­pled with suc­ces­sive lock­downs has meant I’ve had to reassess my finan­cial sit­u­a­tion. I was recent­ly made redun­dant and need­ed to ensure I was in a finan­cial­ly secure posi­tion to weath­er the fore­see­able future. I’ve reassessed my pri­or­i­ties and as a result I’ve had to with­draw some of my pen­sion in the event my health dete­ri­o­rates fur­ther and I need an ade­quate safe­ty net,” he says. 

While the spot­light on job secu­ri­ty has large­ly focused on Gen­er­a­tion Z, accord­ing to the Learn­ing and Work Insti­tute over-50s are more like­ly to be long-term unem­ployed and, as COVID-19 con­tin­ues to add pres­sure to mul­ti­ple indus­tries, pat­terns of unem­ploy­ment are fore­cast in the job mar­ket, putting pen­sion plan­ning in a pre­car­i­ous posi­tion for many near­ing retire­ment. 

Getting younger people invested in pensions

And baby boomers aren’t alone as, accord­ing to a sur­vey by Invesco, mil­len­ni­als have a “wor­ry­ing lack” of aware­ness around the pur­pose behind pen­sion sav­ings. Some 54 per cent of 24 to 34 year olds sur­veyed thought a pen­sion was deposit­ed in a sav­ings account to accu­mu­late inter­est, rather than view­ing it as an invest­ment tool. 

His­tor­i­cal­ly, the finan­cial sec­tor has fil­tered access to its more mature prod­ucts through cod­ed lan­guage and poor com­mu­ni­ca­tion, and the pen­sions indus­try is no dif­fer­ent. How­ev­er, it seems suc­ces­sive lock­downs have con­tributed to the rise in younger gen­er­a­tions becom­ing more informed and opt­ing into pen­sions. 

Pen­fold, a fin­tech spe­cial­is­ing in pen­sions for the self-employed, has seen the num­ber of mil­len­ni­al cus­tomers grow by 150 per cent over the course of 2020. Analysing fur­ther, 92 per cent of under-30s who use Pen­fold have cho­sen a lev­el-four, high-risk fund, com­pared to 66 per cent of over-35s. 

Pete Hykin, co-founder of Pen­fold, says: “The lan­guage and word­ing used by the pen­sions indus­try has been repeat­ed­ly high­light­ed as a huge bar­ri­er to get­ting more peo­ple sav­ing. The indus­try needs to solve this as it deters peo­ple across age, income lev­el, edu­ca­tion­al back­ground, job type from engag­ing fur­ther. Tech­nol­o­gy can help here, offer­ing peo­ple the flex­i­bil­i­ty to access infor­ma­tion, rather than assum­ing every­body has access to a finan­cial advis­er.”

What the pan­dem­ic has high­light­ed is the impor­tance of tech­nol­o­gy in democ­ra­tis­ing finance, includ­ing pen­sions. Now, more than ever, we are wit­ness­ing a ground­break­ing shift in atti­tudes towards pen­sions, as access to finan­cial lit­er­a­ture and tech­nol­o­gy increas­es. 

“There’s been a big mind­set change from an audi­ence typ­i­cal­ly ret­i­cent to engage with pen­sions.” says Hykin. And he isn’t wrong as 2020 ignit­ed mass con­ver­sa­tions, with knock-on effects, regard­ing equal­i­ty and jus­tice as a result of the Black Lives Mat­ter protests. This has pierced the con­science of glob­al busi­ness­es, where racial dis­crim­i­na­tion, envi­ron­men­tal­ism and eco­nom­ic dis­par­i­ties are dis­cus­sion points being brought to the fore­front, ampli­fy­ing the way in which younger gen­er­a­tions inter­act and engage with their finances. 

Using pensions to make a difference

“We’ve seen a rise in peo­ple look­ing into the social impact of their pen­sions,” says Hykin. “What’s most excit­ing about mil­len­ni­als and Gen Z is they are active­ly engag­ing with these com­pa­nies and con­scious­ly con­sid­er­ing where their wealth is invest­ed and who is being impact­ed. They’re begin­ning to see pen­sions as an invest­ment for the future and they want to know they’re build­ing a bet­ter world.”

Zahid Mah­mood, a 26-year-old IT devel­op­er from Lon­don, rein­forces this point: “My first real expo­sure to pen­sions was when the human resources team at my place of work asked how much I’d like to con­tribute on my first day; I had no idea.” Mahmood’s lim­it­ed expo­sure to pen­sions meant he wasn’t best informed on how a pen­sion works, what he would be invest­ing in and the asso­ci­at­ed tax ben­e­fits, to name a few. 

“The change in my atti­tude came when I realised pen­sions were anoth­er way to invest. By Sep­tem­ber 2020, I had learnt enough through per­son­al research to under­stand how a pen­sion can be a pow­er­ful tool for build­ing wealth. As a result, my strat­e­gy has become more aggres­sive in real­is­ing the tax effi­cien­cy of pen­sions.”

While COVID has cer­tain­ly shak­en the world, it has also pro­vid­ed ample oppor­tu­ni­ty for peo­ple to take a more holis­tic under­stand­ing of their finances. The increased time at home due to lock­down, com­bined with assess­ing the longevi­ty of the cur­rent eco­nom­ic down­turn, has forced peo­ple to con­sid­er the finan­cial options in rela­tion to their pen­sions. 

We are yet to ful­ly under­stand COVID’s long-term effect on unem­ploy­ment, but pen­sions have long been an estab­lished finan­cial tool, aid­ing gov­ern­ments, busi­ness­es and soci­ety by trans­fer­ring the work­ing pop­u­la­tion into the next phase of life and this is unlike­ly to change. With tech­nol­o­gy help­ing to democ­ra­tise finan­cial access, savers are like­ly to have a more invest­ed rela­tion­ship with their providers. 

Clare Reil­ly, chief engage­ment offi­cer at Pen­sion­Bee, says: “The increased data trans­paren­cy through tech­nol­o­gy has rev­o­lu­tionised the way we engage with our pen­sion. We want to know where our mon­ey is going and build a sense of own­er­ship.” 

Whether it be more informed lines of com­mu­ni­ca­tion, finan­cial lit­er­a­cy, tech­no­log­i­cal advance­ments or data clar­i­ty, pen­sion providers are re-exam­in­ing their approach to meet the changes in con­sumer habits. With leg­is­la­tion adapt­ing to meet society’s chang­ing career cycles, choice and auton­o­my are set to pave the way pen­sions are man­aged.