Covid-19 hits older workers’ retirement saving plans

Jonathan Stapleton reports

Some 1.7 million workers in their 50s are saving less for retirement due to the pandemic, latest research from Legal & General (L&G) reveals.

The retirement provider has tracked the effects of the pandemic on retirement for the last year and found that in August 2020 hardly any (2%) pre-retirees were actively planning to save less for their retirement.

According to its latest findings however, almost one in eight (12%) are saving less a year on from the first national lockdown.

They also show that workers over the age of 50 have decreased their pension savings by £142 a month on average in response to the pressure the pandemic has placed on their finances. For many people in the UK who contribute into their employers’ defined contribution (DC) pension scheme, reductions of this size equate to halting contributions entirely, often with no idea on when they may be able to start making payments again, L&G said..

Calculations from L&G show that workers in their 50s who have stopped saving into their pension in response to Covid-19 could be nearly £50,000 worse off at age 67, and more than £65,000 worse off by the age of 70 if they fail to start saving again and continue working full time until their retirement.

The firm said its analysis showed the reality and the impact of freezing pension contributions in your 50s on the eventual retirement pot at ages 65, 67, 70 and 75. The provider also calculated the value of re-introducing pension contributions as soon as possible, evidencing the benefit of reinstating savings after six months, one year and three years.

L&G retail retirement chief executive Andrew Kail said: “As the pandemic has progressed, we have seen increasing rates of retirement inequality in the UK. While some older workers have seemingly benefitted from the lockdown, large numbers have had to make some really tough decisions around their finances. The last year has thrown millions of people’s retirement plans off course and we now have 1.7 million people effectively opting-out of pension saving as they struggle to make ends meet.

“We know that many pension pots in the UK will not provide the income people hope for in retirement, and for those in their fifties, taking a hiatus will have a big impact on their savings and ability to retire as planned. It is therefore important not to lose sight of the long-term benefits of saving into a pension to secure a comfortable retirement.

“Although current circumstances are proving challenging, we would urge those who have already saved something for retirement to maintain their contributions. Pausing them may be tempting, however people should explore every possible alternative before considering this. Prioritising enrolling back into the scheme as soon as possible, to limit the losses and take advantage of the tax breaks, is also advisable for anyone who has already stopped.”

Lost pots

This comes as separate research from Aegon revealed the number of people who have lost track of their retirement savings has shown signs of improvement.

The provider’s research found that – while 73% of people have multiple pensions, an 11 percentage point increase since Aegon’s survey in 2016 – the number of people within this group who have lost track of one or all of their pensions has reduced slightly from 21% to 17%.

The recent survey also implied an improvement in pension awareness in the last five years, with an 18% fall in the number of people not knowing the value of their pensions from 39% in 2016 to 21%.

The 2021 survey also explored what caused people to lose track of their pensions, finding the main reasons included that the pension company had been taken over or rebranded, paperwork was lost, or people had moved and had not informed their provider or employer.

Of those who had moved home, 13% said they had never notified their pension providers of their change of address.

When given the choice of options, most people (48%) knew to use the Pension Tracing Service from the Department for Work and Pensions or to contact their previous employers (42%) to find a lost pension, but 18% of people said they had no idea how to find a lost pension.

Aegon head of pensions Kate Smith said: “As nearly every job comes with a pension now, it’s no surprise that the number of people with multiple pension pots has increased over the years. It’s really positive to see a fall in the number of people who have lost track of their pensions, which could indicate that people are becoming more conscious of their workplace pensions.

“This doesn’t mean that we can put the challenge of lost pension pots behind us just yet. In fact, as the number of pension pots per person grows through a lifetime of work and while we await the delivery of pension dashboards, there’s a growing risk that losing track of pensions could become more common.”