Getting accumulation right amid a pandemic

Understandably, the answer is 'yes', according to industry specialists.

Sophia Dimitriadis, research fellow for the International Longevity Centre UK, says: "The pandemic has caused many people to save less than they expected for retirement, and, at least temporarily, seen their pension pots fall in value.

"Many people may therefore need to save more than previously planned and/or work for longer to counteract this drop in savings, to achieve a target retirement income."

Dimitriadis' work at the ILCUK on its generation X research shows the pandemic has spurred many more people towards taking control of their financial futures. She says: "As such, it may be important to receive financial advice to review their accumulation plans for retirement."

Alan Chan, director of IFS Wealth & Pensions, says: "It’s never a bad idea to save more for retirement. Most of us have limited resources so it’s an ongoing compromise between living well today and setting aside enough to live a good level of lifestyle in the future too."

To help people shore up their futures, they need to take a holistic approach to their pensions and think about all parts of their pension journey from as young as possible – it is never too late to refocus on retirement.

We must remind everyone that it is never too late to pay into a pension, nor is any amount too small. -- Robert Cochran

But when deciding how much to save towards their pension, people must think about the standard of living they wish to have. Do they want to maintain the same standard of living? Will decreased costs in retirement, such as housing, mean they can have a lower income in retirement and still have the same standard of living?  

Either way, they need to ensure the savings they make now will last the course.

Rob Yuille, head of long-term savings at the Association of British Insurers, says: "The adequacy of savings is critical to ensuring people are well prepared to handle shocks in retirement.

"Current statutory contributions under automatic enrolment are 8 per cent; however it is likely this is an insufficient rate to ensure people have adequate provision in retirement."

He cites a recent report by the Resolution Foundation, sponsored by Aviva, which found that on average people need to save 16 per cent of their income into their pension to have an adequate living pension.

This increases by 5 per cent for cohorts over 45 who have less time left to save for their pension.  

Careful curation of the pension savings

Yuille says savers should make sure that they continue over the course of their career to consolidate all of their pensions into one or as few pots as possible, as this can help ensure they keep track of all their savings and avoid missing out on money in retirement.

He adds: "This will be made easier with the introduction of pensions dashboards which, when launched, will have information about all a saver’s pensions in one place; it is estimated to be up and running by the mid 2020s."

At present, the government’s Pensions Tracing Service can help track down lost pension pots. But Yuille adds: "When thinking about retirement, we need to consider the time we have in later life, with a quality of life that encourages us to embrace this period fully.

"Increased life expectancy means that on average a man aged 55 can expect to live for a further 24 years; while a woman at the same age can expect to live for a further 27 years.

"The Money and Pensions Service now offers a 'Midlife MOT', which looks at a person’s physical and financial wellbeing; using services that can reaffirm savers’ goals and priorities during retirement can be extremely beneficial to gaining peace of mind over their retirement futures."

Clients should have a financial plan in place to know where they stand financially. -- Alan Chan

There is also value, according to Tom Selby, senior analyst for AJ Bell, in making plans now for retirement so that they can work out what they need to do to get on track. 

He explains: "Anyone wanting to convert their retirement pot into an annuity who is within five years over their chosen retirement date should think about switching to safer investments like bonds and cash so they aren’t exposed to short-term market fluctuations.

"For those planning to take an income via drawdown, a variety of factors – such as the person’s health, appetite for risk and the other assets they hold – will play an important role in the decision someone takes.

"Lots of people will want to shift to an income-focused strategy when they enter drawdown, but given a healthy 65-year-old might expect to live 30 years or more, the risks in their underlying portfolio will not necessarily need to alter substantially.”

But beyond this, savers should be dedicated to making every penny count now and in the future.

To do so, says Steven Cameron, public affairs director at Aegon, the best thing individuals can do is "gain a proper understanding of what they are on track to receive from all defined contribution and defined benefit workplace and individual pensions, as well as how much state pension they’ll receive from when.

"Based on this, their adviser will be able to assess if current contributions are adequate or need increased. It’s also important to make sure investment strategies reflect not just attitude to investment risk but also how they plan to take income – annuity, drawdown or even cash."

Financial advice

Robert Cochran, retirement expert at Scottish Widows, agrees: "The best way to do this is with a financial adviser."

However, he adds: "We know that there are many who simply cannot afford to take this route, and they should be encouraged to seek other ways that may help give them peace of mind that they are on the right track, such as using online pension calculators, and the over-50s can access free pension guidance from Pension Wise."

Chan explains: "It’s important to conduct an income and expenditure analysis regularly and work out which non-essential expense can go and redirect that to extra savings towards retirement.

"Clients should have a financial plan in place to know where they stand financially and what actions they need to take to improve it or stay on track.

"They should also ensure they are taking sufficient investment risk while still in accumulation so that the pension pot grows and regularly review the chosen pension funds so that they are delivering the right level of returns for your financial plan to work."

He warns against clients relying on an inheritance to make their financial plan work – as the old saying goes, "don’t count your chickens before they hatch because there may not be one or as much as one had hoped", he concludes.

Ultimately, as Cochran adds: "Most importantly, we must remind everyone that it is never too late to pay into a pension, nor is any amount too small."

simoney.kyriakou@ft.com