Scottish Widows has released their 2020 Retirement and Savings Report. It was an interesting read this year, what with Covid-19 dramatically changing our everyday lives.
It has been a challenging time both personally and financially for a lot of people. Many have found themselves juggling their finances whilst being furloughed, or out of work for many months. Saving for retirement may have fallen by the wayside somewhat thanks to these more pressing issues. The money sat in pension pots has also been exposed to more risk thanks to the turbulent markets caused by the pandemic.
Let’s take a look at the main points from Scottish Widows’ report.
Who is likely to be most affected by the pandemic?
As we have already touched upon, Covid-19 has affected everyone’s lives in one way or another. Whether you suddenly had to take on the role of teacher, adjust to working from home or taken on the responsibility of caring for a relative left vulnerable by the pandemic.
Some groups have been more adversely affected than others. Scottish Widows found that those working in vulnerable industries such as hospitality and retail are facing worries over the future of their jobs and therefore their finances.
Those who already fall into the retirement ‘savings gap’; self-employed, renters, young people and ethnic minorities, however, are most likely to be hardest hit.
Covid-19 is a Dual Crisis for Savings
The financial implications of Covid-19 is two-fold. It’s impacting the short-term finances of households across the country and compounding the inequalities in long-term retirement preparations too. Incomes have taken a hit and jobs are being lost every day, causing pension contributions to stop too.
What has Covid-19 taught us?
Covid-19 has highlighted just how important it is to have a financial buffer. It has also highlighted just how many people have nothing available for a crisis and lack financial resilience.
There is evidence that those on low incomes are harder hit. The IFS estimate that people in the bottom 10% of earners are seven times more likely than those in the top 10% to have worked in a sector that has been shut down. The families who were already finding it difficult to make ends meet are now feeling an additional strain.
Granted, crises don’t happen very often, but 2020 has proved that we all should be prepared if they do.
According to Scottish Widows, another issue that Covid-19 has highlighted is the financial knowledge gap experienced by the general public. People should ideally have the confidence to manage their financial wellbeing, but it just doesn’t appear to be happening.
The Scottish Widows 2020 Retirement Report in Figures
The report highlights how well prepared the population are for their retirement. Here’s everything you need to know:
- 60% of those aged over 30 are saving adequately, the highest since the survey began in 2005
- The proportion of 22-29 year olds saving adequately increased by 11%
- The overall increase in those saving adequately since 2019 has been small at just +1%
- 54% of people are concerned about running out of money in retirement
- 89% have taken no action on their pension due to Covid-19
- 39% do not feel they have the right information to make an informed decision about their retirement savings
- 27% would like more advice on how to mitigate future risk to their pension.
Thanks to auto-enrolment, more people than ever are saving adequately (at least 12% of their income) for their retirement. This is great news! However, over half of those surveyed are still concerned about running out of money in retirement.
The impact of Covid-19
No report would be complete this year without taking a look at the impact of the coronavirus. The pandemic has forced millions of people into financial hardship and highlighted the need to build people’s confidence to manage their pension.
So, how exactly has Covid-19 affected people and their ability to manage their retirement planning?
- 19% have seen a drop in income due to coronavirus
- 20% are worried about having enough money to pay their mortgage or rent
- 21% have had worries about their pension due to coronavirus
- 24% are worried about being able to pay for essentials like food and energy
- 68% of those with financial worries say it has negatively impacted their mental wellbeing
- 39% do not feel they have the right information to make an informed decision about their pension in times of uncertainty
- 33% of those with financial worries due to Covid-19 say it would be helpful to have access to some of their pension savings
- 35% of household in the UK have no savings to rely on
- +5% increase (now 48%) in people who say it is likely that they will face a financial emergency.
The Retirement and Savings report goes on to take a closer look at those groups in the ‘savings gap.’ As we have already mentioned, they are the ones who are most likely to feel the effects of the coronavirus on their pockets. Here are some of the most striking facts on those groups most at risk:
- 55% of self-employed people are concerned about running out of money in retirement, with 34% not currently saving anything for retirement
- 54% of ethnic minority households have no savings or investments
- 26% of young people aged 18-29 have lost their job or been furloughed due to Covid-19
- 25% of renters whose work was impacted by Covid-19 have had to move in with friends and family or cut their tenancy short, with 65% of renters feeling they are not preparing adequately for retirement
- 69% of low paid workers are women, with 17% of women not saving anything for retirement.
What can we take from the Scottish Widows Retirement Report?
The question we have to ask ourselves here is, are we saving enough? Both for a rainy day and for our retirements. We all know that in an ideal world we would be putting money aside for emergencies and plenty in our retirement pots too. But how many of us are actually managing to do that?
At the moment, only a minority are expressing worries about their retirement planning in response to Covid-19, which is positive. But it’s still a real concern for a lot of people. A high percentage of those groups we have just taken a closer look at are concerned about running out of money in retirement.
The crisis has possibly been a bit of a wake-up call for a large proportion of the population. You never know when you may find yourself in financial difficulties, so it really is a good idea to build up a buffer in case you do.
Making the most of an opportunity
As the recent pandemic has taught us, life can really throw a spanner in the works. Whilst it has been an incredibly difficult time for everyone, now could be the perfect opportunity to take a look at our finances.
All the time spent at home recently has probably highlighted just where your money goes. Are there changes that can be made to help build your financial resilience? Maybe you will decide to cut down on eating out and put that money into savings instead.
If you need any help with auto-enrolment, pensions and retirement planning, investments and savings or cashflow planning, don’t hesitate to get in touch. We are well versed on making your money work hard for you. Providing you with the peace of mind that you will be better equipped to ride out turbulent times.