Pandemic causes older staff to vary their retirement plans
Hargreaves Lansdown Personal Financial Analyst Sarah Coles discusses the results of the latest ONS study on Living Longer: Older Workers During the Coronavirus Pandemic (Covid-19).
One in eight (13%) workers aged 50 and over has changed their retirement plans due to the pandemic: 5% will retire earlier and 8% later, according to a study by the ONS.
It looked at how the coronavirus crisis had hit older people in the workforce and found that it had triggered a rethink about retirement. The people who wanted to retire earlier and those who wanted to retire later were evenly divided, but in many cases the reason for their decision was the same: they had no other choice.
An important factor is the fact that older people are financially badly affected and therefore want to work longer in order to make the money. More older workers were given leave than any other group (except 16-24 year olds). In fact, they made up a quarter of the vacationers. Shorter working hours and vacation that were not increased by every employer put their finances under pressure. In some cases this has meant that pension contributions have been reduced or stopped entirely. In other cases, those over 55 had to draw their pension.
Unfortunately, not everyone has a choice of whether to work longer or not, and many older people had to quit their jobs earlier than planned during the crisis. During the reporting period, the employment rate for employees over 50 fell from 73% to 71% and for those over 65 from 12% to 10%. Meanwhile, nearly a third of older workers on vacation thought their chances of keeping their job after the vacation ended was 50:50: losing one’s job at that age means a far higher chance of long-term unemployment. Some retire earlier because they can’t find another job.
However, there are other positive reasons for wanting to retire later. Most elderly people could not work from home during the pandemic, but of those who did, 11% planned to work later in life. This may be because they realized that if they had more flexibility to balance work and life, they could do their jobs longer.
Regardless of your age, it pays to reconsider your retirement plans so that you are one step ahead of any nasty surprises. The best thing to do is to check your retirement savings and use an online retirement calculator to see if you are on track to get the retirement savings you want at the expected age. Don’t be afraid to admit something you don’t really understand. There’s no shame in getting back to the basics of what a pension is and how it works. There is a lot of information online, including providers such as HL, but also The Money Advice Service and the Pensions Advisory Service.
If it is a company pension, talk to your employer as they can tell you about your company pension and should provide brochures to guide you through how it works. If you don’t enjoy working your way through a brochure, ask for a meeting where someone can properly explain it to you.
If you don’t know where you’ve invested, you’re probably in your system’s default fund – ending up where you haven’t made an active investment decision. Request a copy of the standard fund factsheet, which lists the fees you have to pay and the development of investments compared to the average for similar funds.
In a default fund, you’ll likely invest around two-thirds of your pension in stocks that offer you the best chance for growth, and the rest in bonds and cash, which tend to fluctuate less in value. If you are under 40, you can invest more of your pension in stocks. Most annuities give you some alternative options, so ask for details or seek advice to help you find the right investments for you.
Before rewarding yourself for positive steps, make an appointment in your journal to review your progress – it’s a good habit to check back at least once a year. If you do, check how the funds are performing and whether they are still appropriate for your circumstances. If you do this regularly throughout your career, you will have a lot more options as your circumstances change. That means you have the option to increase your contributions or optimize your investments to increase your retirement instead of simply having to work longer hours.