Pensions  

Getting accumulation right amid a pandemic

This article is part of
How to navigate decumulation post-Covid

Getting accumulation right amid a pandemic
 Photo via Pexels

If people need to pay closer attention to their decumulation strategies post-Covid, do people also need to pay more attention to accumulation?

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.

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.