How has coronavirus affected the nation's pensions?
Pensions expert Jackie Leiper looks at how the coronavirus pandemic has impacted the UK's pensions and long-term savings - and whether there have been any silver linings in the way that households manage their finances.
The pandemic showed that some people were dipping in to their pensions earlier, whilst others were saving a lot more. What needs to be done to help create a fairer and more equal recovery?
We recently published our Retirement Report which showed that the pandemic has affected people in very different ways; there is a significant group of people who report no change to their financial status and almost a fifth of respondents said that they were in a better financial situation than before the pandemic. However, almost a third of respondents said that their financial status had deteriorated – the already vulnerable populations such as the lower-earners, self-employed and part-time workers were all excessively hit.
There is a lot that needs to be done for women, younger people and self-employed who have been disproportionately hit by the pandemic. Let’s take each of these populations and look at some of the specific impacts:
Younger people are more likely to be lower earners or working in a sector that has been harder hit by COVID-19 and the associated restrictions. However as businesses re-open and more people return to work, there is an opportunity to re-engage younger people in their finances and savings especially as this group feel concerned about their future with 27% of lower earners reporting that they are not saving anything for retirement.
Women tend to make up the largest proportion of part-time workers, largely as a result of juggling childcare, so making changes to auto-enrolment regulations such as removing the £10k threshold and lowering the minimum age from 22 to 18 would help to create a fairer recovery after the pandemic. Increasing the higher default contribution rates will also go a long way to see a more equal recovery, as the past has shown us that increasing the minimum contribution drives higher savings and higher membership in pension schemes.
Finally the self-employed population have very varied financial plans, but of course currently there is no equivalent of automatic enrolment and therefore Government need to consider what can be done to better support the self employed in preparing for retirement
"There is a lot that needs to be done for women, younger people and self-employed who have been disproportionately hit by the pandemic. "
Whilst many people have clearly struggled financially during COVID-19, there have been some silver linings like money saved through lack of commuting. Do you think there are any ‘good habits’ or positive behaviours which people have started which might continue after COVID-19?
Absolutely! One of the positives to come out of the crisis is that we’ve seen people across all walks of life increased their financial resilience by being able to build up or increase their savings, including among lower earners. The pandemic has prompted more people to think about financial advice and think about the future beyond this crisis. The most popular use of the extra disposable income that many people have reported is to save towards a ‘rainy-day’ fund, with many others grabbing the opportunity to pay down debt and mortgages – all things that will improve their retirement prospects.
Another silver lining is the improvement in work-life balance for many people. Many industries switched to flexible working arrangements to support their employees which has allowed for people to find a better balance, make better job choices and feel supported in their career ambitions. By offering flexible working, employers are attracting greater, more diverse talent which will benefit them as well as the individual.
Have we been encouraging our customers to keep saving in to their pensions during the pandemic?
The approach we’ve taken at Scottish Widows with our customers is to develop a wide range of support including stepping up our virtual engagement into the workplace of many of the employer schemes that we manage. We tailored the information we shared with employers and their members to take into account the range of different situations faced by businesses including those using Government support schemes like furlough, those that have had to scale down and make redundancies as well as those who have accelerated their retirement plans.
Looking more broadly than our own customer base we’ve made a concerted effort to have our Scottish Widows pensions experts talking about practical steps everyone can take to protect their pensions and long terms savings through our ‘ask the expert’ pod and vod casts on our website to providing hints and tips in the media. Our plans for pensions awareness day in September are also shaping up nicely…
Were any of the figures in the reports particularly surprising or notable?
One of the really notable things from one of our other reports - the Household Financial Index report - is that overall, UK households are feeling more positive about their financial wellbeing for the short-term future for the first time since 2016. We had expected to see a deteriorating picture given the impact of the pandemic on many in terms of their job. The pandemic has encouraged people to think about their own financial resilience and use some of their disposable income that they’ve saved over the various lockdowns towards short-term savings, repayments or their future.
With many people now returning to work after furlough, as well as the easing of restrictions, there has been a much improved trend in UK household income, which will help build future financial wellbeing.
You recently spoke about the Pensions Gender Pay Gap, does the report reflect your thoughts from earlier in the year?
It is good to see that the gender gap on the Adequate Savings Index has closed for the first time in this year’s Retirement Report, however, there is still a very material gap in actual contributions being made between the genders with men contributing 50% more than women on average and the lifetime accumulation of pensions savings meaning that at retirement, men have 5 times the pot of a women.
For International Women’s Day this year, Scottish Widows focused on raising awareness of the gender pension gap to empower a generation of young women with the information they need to close the gap and have created a range of materials to support at key life stages to ensure the longer term impact of those choices on retirement savings is fully understood i.e. parenthood, divorce and separation, taking time out of the workplace etc
How optimistic are you about the post-coronavirus financial situation?
On one hand I’m feeling really optimistic – lockdown restrictions are easing, household income is seeing an improvement and the economy is getting moving again. The employment market is much more buoyant than first anticipated. These are all things that indicate a good post-covid recovery with a focus on long-term savings and plans.
However I am sure that there are also longer term impacts that we just don’t about know yet, for example what it means for ‘generation covid’ and the impacts from the disruption to education, the very different impacts on different sectors and therefore types of employment available and long term earnings prospects how this flows through into financial planning & retirement savings.
We need to focus on what we can control. Offering as much support as possible to our customers and building brilliant propositions that flex with their needs.
MD Pensions, Stockbroking & Distribution, Scottish Widows
Jackie has over 25 years experience in the financial services industry, with specialism in life and pensions, and a focus on leading customer and client facing teams. She joined LBG in 2010 to lead one of our large operations teams, fulfilling a number of leadership roles before assuming her current position in 2018, where she is responsible for pension proposition development, distribution of Scottish Widows flagship pensions and protection products, and the Halifax Share dealing business.
Jackie is a huge advocate of raising awareness of financial resilience, particularly for women. She is an industry-recognised advocate for driving societal and political change that will help close the gender pensions gap.
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