How to accumulate in the current climate

And depending on whether they are at the start or further along, their approach will need to be different.

Maxine McIntyre head of financial strategies at WPS Advisory says if individuals are at the accumulation stage, they need to know what they are aiming for and they need to make all decisions in the context of their objective.

Ms McIntyre adds: “If you want to confuse, use words like accumulation, make it all about the investments and not the person and their loved ones.

“Working in a client-centred way will optimise the probability of consistent decisions, because it will stop the focus being on short-term fluctuations.

“To help this, it is important the individual understands any investment instruments upon which they rely to achieve their objectives and how they can react - that means right from outset.  

“If they do not understand, if they cannot evidence they understand, then they should not be holding those instruments.”

At times when markets have fallen, a regular contribution can buy more units which in the longer term could increase the value of pension savings.--Steven Cameron

Early stage

For those in the earlier stages of their working life, there is a strong case for simply carrying on as before.  

Steve Webb partner at pensions consultant LCP says: “They may have enjoyed several years of strong growth and if they are in a workplace pension with a substantial employer contribution and a top-up from tax relief, they have still enjoyed a fantastic return compared with most other potential uses for their money. 

“Where people are keen to try to rebuild their pension pot more quickly, a key tip is to make sure they are taking full advantage of any 'employer match' on their workplace pension contributions.”

Steven Cameron, pensions director at Aegon adds: “For those saving in pensions who are many years off retirement, even large swings in values today may make no difference to what they ultimately have once they retire. 

“In fact, at times when markets have fallen, a regular contribution can buy more units which in the longer term could increase the value of pension savings. This is why in such circumstances, it makes sense to keep paying in as usual.”

For those on workplace schemes, the experts say it should create some baseline advantages, in that the value of the collective should create economies of scale and leave more of the customer’ in their own pocket, albeit in the pension scheme, should, mathematically and in theory, produce better outcomes.

“However, very often individuals are in the scheme without really understanding its true long-term value and they do not get access to advice,” Ms McIntyre points out.

“What they get is education and guidance, which has value, but it does not, in our experience, always build the bridge between making a decision to be in a scheme, auto-enrolled or not, and having a clear plan.”

Mr Webb says for those in defined benefit (DB) schemes, the current crisis should have little impact unless the sponsoring employer becomes insolvent.  

He adds: “If this looks very likely then there might be a case for exploring whether a transfer out would be advantageous, but many schemes have currently put transfers on hold, and the advice process will take some time, so this is not something that can be done quickly.”

Very often individuals are in the scheme without really understanding its true long-term value and they do not get access to advice.--Maxine McIntyre

Ms McIntyre has further laid out a set of actions she would take if she were working with workplace sponsors and trustees.

She would:

• Seek to talk about how “we work” to ensure that every individual could better relate the money being paid into the pension plan to their own future and, methods of having every single member understand the importance of having a plan and, always making decisions in the context of that plan.
• Suggest finding new ways of providing these members with support, and access to high quality, affordable, financial advice.
• Ask them to consider building a bridge across to the advice allowance; recognising that individuals will not pay for advice, because for generations they have believed advice is free, because it was paid for by a distribution chain focused on selling products and businesses where adviser success was based on achieving sales targets.

Furlough scheme

With many employees currently furloughed, those who are thinking about their retirement will be wondering how this will impact their pensions.

And even those who are not thinking about their pensions would do well to understand how the crisis could affect them.

Under the Job Retention [furlough] Scheme, the government will pay 3 per cent employer contribution into a members’ pot on earnings between £520 and £2,500 per month.  

For those individuals, whose earnings are capped and/or their employer was paying more than 3 per cent of earnings, they will see a reduction in the levels of payments being made during the period they are furloughed.  

Ms McIntyre explains if an employer was paying higher than the minimum, they may decide to cut back the levels of contributions to the minimum requirement during this time. 

At this time, The Pension Regulator has introduced a temporary easement to assist here.

Some pension arrangements will allow a member to temporarily reduce, or suspend their contributions or, opt out altogether. 

Ms McIntyre adds: “It is understandable that an individual who has been furloughed will likely be focused on the here and now, and not the long-term plan; revisiting their monthly budgets and trying to make cost savings and continue to support their families until they are able to return to work.  

There’s a record number of self-employed people in the UK right now, many of whom can no longer work due to the lockdown.--Tom Conner

“Individuals’ need to be educated, and have guidance - made available by employers - to make them aware of the consequences of taking any such action.

“The minimum employee contribution is 4 per cent of qualifying earnings and while making contributions must be affordable, stopping or reducing contributions will ultimately affect their long-term retirement plan.

“Opting out altogether means the member will also miss out on 3 per cent employer contributions and of course 1 per cent tax relief from the government; a total of 8 per cent.”

Employer contributions allow employees to benefit from contributions of up to £75 a month. 

Kate Smith, head of pensions at Aegon says: “While employers paying above the minimum will not be able to claim back these additional amounts, including the auto-enrolment minimum in job retention grants is a very welcome demonstration of the importance the government places on ongoing retirement savings.”

The self-employed

When it comes to those who are self-employed, they are already incredibly underserved when it comes to pensions; being left out of auto-enrolment. 

This means that they are under no obligation to make pension contributions to a personal pension and, without an employer to pay into the scheme on their behalf, they struggle to build up pensions at the same level as employed people and may face a worse retirement as a result.

Tom Conner, director at Drewberry says: “There’s a record number of self-employed people in the UK right now, many of whom can no longer work due to the lockdown. 

“This means they face no money coming in for everyday necessities let alone pension contributions other than what they can claim from the benefits system.

“With the government’s scheme to help the self-employed not kicking in until June, the self-employed are already struggling.”

Mr Conner recommends that where they can afford to, the best course of action would be to continue contributing to a pension scheme.

Although, he recognises that this will not be an option for the vast majority of the UK’s self-employed workers right now and priorities such as bills and food will come first.