Things to consider when redundancy results in retirement

There have been many recent redundancy announcements and, even with the extension of the Coronavirus Job Retention Scheme, it sadly seems inevitable that more will be announced over the coming months. This will particularly impact those planning to retire or those who find themselves facing an unplanned early retirement.

Financial support through the provision of financial education, guidance and regulated financial advice, is crucial right now so that employees understand their financial situation to make the most of their retirement savings.

We have outlined below some of key questions that are asked at our redundancy and retirement seminars to help employees understand some of the options available to them.

1. Can I afford to retire?

This could be more affordable than many think. Employees may not realise that they could use the tax free cash from their pension to pay off any outstanding loans and mortgages, and without these debts they may not need as much as they think.

2. How do I maximise my retirement savings?

Instead of using their pension pot as a source of income, many people would be better off using other taxable savings and investments first. If employees are able to do this, it would allow their pension savings to benefit from a longer period to hopefully grow in its tax efficient environment. Redundancy pay can also be used to boost pension savings, which will be particularly beneficial to employees approaching retirement.

3. Do I need regulated financial advice?

Getting regulated financial advice can make a real difference, especially in these concerning times. The cost of advice can put some employees off but usually the benefit far outweighs the cost, as an adviser will look at all assets, work out the most tax efficient way to fund retirement and then put a bespoke plan in place.

4. How will I be able to afford unexpected expenses and future care costs?

Some employees we speak to are really concerned with the impact coronavirus has had on their existing investments and, as such, worry about how they are going to cover unexpected expenses in retirement. The reality is that most people are sensible in retirement and adjust their spending according to what they need. Only 4% of people aged over 65 live in care homes in the UK, rising to 15% of those aged over 85. So whilst this is something for employees to keep in mind with their financial planning, it isn’t something to necessarily lose sleep about. However, getting regulated financial advice on an annual basis can help them to keep their plans on track as their situation changes.

5. How do I protect myself from scams?

Unfortunately scammers often see turbulent times like these, when people are concerned and vulnerable, as an opportunity. In July, Action Fraud reported that victims of coronavirus-related scams had lost more than £11 million, with it previously stating that pension scams had been among the most common type of fraud during the crisis.

Victims of pension scams can be left approaching retirement with a significantly reduced income and in some cases, entire life savings can be lost. So, whatever employees are planning to do with their retirement savings, it’s vital to check whether the company that they’re planning to use is registered with the Financial Conduct Authority (FCA). They can also visit the FCA’s ScamSmart website which includes a warning list of companies operating without authorisation or running scams. Regulated financial advice can also offer added consumer protection should anything go wrong.

The author is Jonathan Watts-Lay, director, WEALTH at work.

This article is provided by WEALTH at work.