In Focus: Retirement Income  

Covid-19 threatens retirement planning stability

Covid-19 threatens retirement planning stability

Covid-19 has caused growing uncertainty surrounding the future of retirement planning, to according to pensions expert Romi Savova.

Romi Savova is chief executive of PensionBee, an online pension provider service which she says was created to simplify pension savings in the UK. 

But how complicated are pensions savings? And has Covid-19 caused problems for Britons when it comes to putting money aside for retirement?

Speaking to FTAdviser in Focus, Romi Savova discusses the impact of the pandemic and Brexit on the stability of pension planning. As she says: “There’s no easy way to put it: the world has never been more uncertain for prospective retirees.”

FTAdviser: How can advisers encourage clients to build a retirement pot following the uncertainty covid-19 has placed on retirement planning?

Romi Savova: There’s no easy way to put it: the world has never been more uncertain for prospective retirees. 

But it’s important for advisers to stress that pensions are a long-term investment and although it can be uncomfortable, short-term fluctuations are normal and to be expected from time to time.

They are unlikely to cause any lasting damage, especially if a client has no plans to retire in the next few years. 

While setting the right investment strategy and managing your pension contributions are crucial, regardless of whether markets are up or down, the current economic environment has made them even more pertinent.

Advisers should reiterate that the best pension investments are usually diversified. Meaning they are invested in a mixture of assets such as shares, property, bonds and cash – spread across global markets, from North America to Asia – to protect against the risk of any single type of asset or location. 

In the longer term, savers with diversified pensions tend to achieve bigger pensions that last longer. Savers should avoid the temptation of moving their pension to a very low-risk investment strategy while markets are low.

As there is a good chance they will miss out on the eventual market recovery. Low risk plans should usually only be considered if a saver is withdrawing their entire pension imminently.

FTA: The pandemic has hindered annuity growth with a marginal growth over the past year. Is there any support for pensioners who have been hit by this?

RS: Annuity rates have really suffered in the past year, and are still considered low by historical standards due to the low interest rates we’re seeing.

It’s important for savers to remember that a reduced pension balance will also result in reduced annuity income, so buying an annuity immediately after a market downturn could result in a lower than desirable - and irreversible - annual income. 

Therefore if a saver is considering an annuity, but hasn't yet bought one, it might be worth waiting a little longer. Additionally, inflation appears to be on the rise, and that may soon be complemented by higher interest rates and annuity rates.