Others who were furloughed may have only received 80 per cent of their pay, reducing their pension contributions, with a third of over 50s in work seeing a decrease in their monthly household income, by an average of £500.
As well as having less to put into a pension, some nearing retirement may have started to use their funds earlier than they had anticipated. Even if people have come out of the pandemic relatively unscathed, worries about their future or job security are likely to have increased, and that could affect the way they are thinking about retirement.
On the flipside, 1.3m people plan to retire early due to the pandemic, perhaps because the crisis has caused them to reevaluate their priorities.
Sadly, many will also have experienced bereavement, and some may have found themselves receiving an unexpected inheritance - which may allow them to retire early, but also means they may be having to make big financial decisions for the first time in their lives.
For clients experiencing a change in their personal circumstances, there is a need to revisit decisions that may already have been made in order to understand how the changes may impact their retirement pot. That means looking again at aspects of retirement planning such as care home strategies and inheritance considerations.
In such conversations, it’s important to bear in mind the stages of dealing with a change in circumstances, also referred to as the emotional change curve. This model states that people go through five main emotional states when responding to change: shock, denial, anger, depression and acceptance.
By predicting how the client will respond to change and allowing them to work through these stages, the adviser can help them navigate their situation and ensure they are supported with the relevant guidance.
The importance of asking the right questions
When the client’s plans change, much of the work that an adviser does when setting that plan in the first place will need to be revisited. In particular, the adviser may need to do the following:
Navigate a change in risk tolerance and capacity for loss: As the client faces a change in their circumstances, perhaps prompted by COVID-19, their levels of risk tolerance and capacity for loss may change. By revisiting any initial conversations and conducting regular risk-tolerance tests, the adviser can ensure that they are accurately understanding the client’s values and behaviours.
Rebuild self efficacy & resilience: A shift in personal circumstances, for example losing a job or being furloughed, can result in the client losing confidence in their ability to manage their finances in order to achieve their goals - referred to as self-efficacy. By addressing these shifts in circumstance as they arise, the adviser can help rebuild resilience, ultimately helping the client bounce back from the difficult period.