As we start to see a loosening of the lockdown, it is crucial that we also review what other rules and regulations could also be enhanced as we enter the ‘new normal’.
Our attention is turning away from the direct health crisis to the significant economic impact of the global pandemic.
It is becoming uncomfortably clear that while not everyone has been physically affected by the virus, every single one of us will be impacted financially. During the pandemic, savings and investments have been volatile, as have wages and jobs.
We have already seen personal financial losses and disruptions, but sadly this will worsen as we begin to navigate the immediate aftermath of Covid-19.
Data from the latest Moneyfacts UK Personal Pension Trends Treasury Report showed that the impact of the coronavirus pandemic on global stock markets had caused the value of the average pension fund to plummet by 15.2 per cent in Q1 2020.
While for younger savers the power of time will hopefully turn the pandemic into a mere blip on their statements, those nearing retirement cannot afford to sit back and wait for their pension pots to recover as they see their retirement income fall.
- Attention is turning to the economic consequences of Covid-19
- People must be more financially resilient
- There needs to be greater financial guidance
The introduction of auto-enrolment has brought nearly 10.5m people into pension saving, many of these for the very first time. This might well be the first real economic downturn they have faced.
It is disheartening, if not downright scary, to see your balance sheets tumbling. If you are not financially well versed, the cyclical nature of the economy is not at the forefront of your mind, which is when rash decisions are more likely to be made.
Despite this increase in the number of savers, 92 per cent of the UK adult population does not receive financial advice. Last year, just 4m people received advice, and only half of these benefited from it on a regular basis.
Thankfully, the current crisis could reignite a savings culture in the UK.
Since World War II, savings have fallen consistently, but this sharp, painful reality check may provide the catalyst for consumers to truly understand the importance of having a cash buffer for unforeseen circumstances.
Furthermore, the lockdown has resulted in a reduction in spending that may prompt some households to keep consumption at a lower level, with increased saving.
But growing cash reserves, increased savings and investments carry more product options and vulnerability to risks. The financial services industry needs to adapt to this new world and the return to a more valued savings culture.
A call for guidance
First and foremost, we need to make financial guidance more accessible and loosen the rules around personalisation, especially for those who try their best to save but deem advice expensive compared with the size of their savings.
As more people save through AE and other schemes, we will find that those who need enhanced guidance will be a growing demographic.