Writing pension prediction pieces is a tricky game at the best of times, even when there are known changes on the horizon.
As we emerge from 2020 facing the new year ahead, it seems downright daunting. Of course, it’s difficult to look forward to 2021 without knowing the effects of 2020, and the problem there is it’s simply too soon to tell.
While we’re told that the light at the end of the tunnel is getting closer, we haven’t reached it yet. This year, even though we talk about looking back on 2020 and forward to 2021, we’re also considering the (hopefully not too distant) turning point in the pandemic.
The surveys and research results available so far give a mixed view of how 2020 has affected savers. Interactive Investor, for example, reported a significant increase in the SIPP contributions it received between January and October, most of which came from investors age 30-49. It’s not hard to imagine that much of the additional saving came from those fortunate enough to keep their jobs during the pandemic and also see their outgoings reduce due to the restrictions.
It’s also been reassuring to see reports, including one from The People’s Pension (conducted by YouGov), suggesting that most people haven’t made changes to their pension savings in 2020, even if they have been adversely affected by the pandemic. Despite everything, it doesn’t appear that people have abandoned their pension savings in droves.
This isn’t to downplay the fact that millions of people struggled financially in 2020. I started with the positive stories, but there are of course other reports about the number of people whose retirement plans have been negatively affected. This year’s Great British Retirement Survey showed that 13% of people thought they would need to delay their retirement because of the pandemic, with a quarter of those worried that they would never be able to retire at all. A third of people weren’t sure whether they would be able to stick to their retirement plan, and almost 30% of people in their 60s thought they would need to work into retirement to offset their investment losses.
While I fully appreciate that what people think and fear might not necessarily play out in reality, it’s still a bleak outlook.
For those at retirement age, the pension freedoms may at least have helped alleviate some of the pressure, as savers may have been able to access part of their pension to help see them through until things improve. However, this could also mean that some may have made irreversible changes to their arrangements – such as triggering the money purchase annual allowance – that could affect their plans going forward.
It’s certainly true that while the pension freedoms might have helped people in financial difficulty, people’s experience of actually accessing their pensions hasn’t necessarily been too positive.
Research from Just Group this year has shown that many people are still confused about the available options for their pension savings, and others are unhappy with the information they received when approaching retirement. It seems the industry still has a way to go to provide clear communications that help support savers in making the right choices for their pensions.
All this paints a rather mixed picture, whether you’re simply looking forward into 2021, or a bit further ahead to when life starts to return to normal.
I hope that more people are inspired to seek financial advice and/or guidance going forward. I expect there are plenty of people whose pensions offer more flexibility than they appreciate, and who may be able to find creative solutions to their financial problems given the right support. There will also almost certainly be those who, understandably, didn’t make the most appropriate financial decisions in 2020 and will now need help to build a new plan for the future. I hope the pension industry can rise to the challenge of providing better, clearer information to clients about their options.
I also hope – perhaps in vain – that we won’t see any immediate, significant changes to the pension rules. People need time to get to grips with how 2020 has affected their finances and retirement plans, rather than being thrown into a new set of rules and requirements.
The main rumour at the moment regarding pension changes is, unsurprisingly, that this will be the year we finally get an announcement about overhauling contribution tax relief.
Something of that scale should at least take a while to implement; however, it’s also possible that we’d see other changes in the meantime, such as a significant cut to the annual allowance.
While this would probably serve as a ‘quick fix’ that would cut the cost of tax relief while not affecting the majority of savers, there is a big drawback that could affect anyone: the loss of flexibility. While most savers won’t regularly contribute anything close to £40,000 a year, many will, at some point, want to contribute a larger one-off amount when their circumstances allow.
Many who do contribute larger amounts are trying to build up their pension in a relatively short space of time, perhaps later on in their careers once other costs such as mortgages and childcare have reduced. Pensions offer so much flexibility now when accessing benefits; it would be disappointing to end up with significantly less flexibility when saving in the first place.
Whatever 2021 may bring, I’m sure that pensions and retirement planning have an important role to play, and there will be plenty of opportunities for the industry to help savers achieve their goals.
Jessica List is pensions technical manager at Curtis Banks