The impact of Covid-19 on retirement plans means financial education is more important than ever

Covid-19 is having a profound impact on retirement plans, with our recent poll revealing that 84% of respondents think employees have changed their retirement plans in light of the pandemic.

Why employees are changing their retirement plans

The pandemic has affected nearly all of us and not least those employees who are approaching retirement. It therefore comes as no surprise that nearly all of those polled believe that employees have changed their retirement plans in light of the pandemic.

There are a couple of reasons for this. First, redundancies have led to many individuals deciding to retire early and access their pension for perhaps the first time. In fact, according to LV’s Wealth and Wellbeing Monitor, more than 154,000 people aged 55–64 have opted for early retirement because of redundancy and reduced income.

Second, some have found that they have to delay their retirement plans to rebuild their pension pots that have been adversely impacted by market fluctuations. A poll by YouGov found that 13% of over 55s are planning to delay their retirement, whilst a Fidelity International study suggests 38% of people will put back retirement by around two and a half years.

Supporting employees to overcome retirement concerns

Employees who are approaching retirement age are probably feeling concerned about whether they can afford to retire at the moment. However, financial education could help them 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 to afford retirement.

For organisations that are making redundancies, affected staff should receive appropriate support so they understand how it will impact their finances, including how to budget, manage debt and cut down on spending and bills. Support will also be needed around understanding how much of their redundancy pay will be received after tax, how to make it last if they don’t get a new job quickly, or how retirement could be an affordable option when perhaps they thought it wasn’t.

With many retirement plans up in the air, financial education, guidance and access to regulated financial advice is needed now more than ever. Many leading employers and Trustees are putting robust processes in place to ensure that this support is available for the workforce. This can help employees become more financially resilient and lead to better outcomes for all.

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

This article is provided by WEALTH at work.