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“Pensions blackhole” warning as savings fall

Written by: Emma Lunn
Half of all pension savers won’t have enough cash for retirement due to market falls during the pandemic.

A drop in the value of retirement savings following the impact of Covid-19 means half (51%) of the UK’s pension investors won’t have enough money to meet their needs in retirement, according to Fidelity International.

Fidelity’s Investor Survey, which captures UK investor sentiment since the outbreak of coronavirus, found that less than a third (29%) believe they’ll have sufficient income to cover their retirement, therefore avoiding the “pensions blackhole”.

Of those facing a shortfall in their investments, many plan to continue working, either full-time (36%) or part-time (35%), while a fifth (21%) say they expect an inheritance to plug their pension shortfall. A further one in five (18%) expect to be financially supported by their partner.

Maike Currie, investment director for workplace investing at Fidelity International, says: “The Covid-19 market falls will be remembered for their speed and brutality, with extreme market volatility, often over consecutive days.

“While the market has recovered some of these losses, for many the impact will be far longer lasting, with half of investors reporting a ‘pensions blackhole’ impacting their retirement plans. Pension pots that have taken decades to build may have suffered sharp losses, leaving those near retirement assessing their options for bridging the gap between their expectations and their actual income.”

Almost two-thirds (61%) of investors planning to retire within the next five years have seen the value of their pension investments fall, following the impact of Covid-19 – leaving 45% doubtful over whether the levels of income their pot will provide will be enough.

What should investors do?

The action savers should take depends on how close they are to retirement. Younger investors have time on their side and can recover losses if markets continue their climb back to pre-pandemic levels.

Investors maintaining their regular contributions will benefit from both the compounding of returns, and pound cost averaging – investing more when prices are low and less when they’re high.

But those closer to retirement may want to consider more decisive action such as working for longer or exploring supplementary income streams such as property, or looking for cost savings.

Savers who decide to defer their desired retirement age and work for longer should update their pension provider about their plans, particularly if they’re a member of its default investment option. Doing this means  avoiding de-risking investments too early, and potentially missing out on further opportunities for growth.

“For those nearing retirement, working for longer may not be an option they either want or can pursue, depending on their circumstances. Similarly, they’re likely to want to hold onto their desired standard of living as much as possible,” says Currie, “Drawdown allows you to remain invested for as long as possible – benefiting from potential market recovery – while also offering you access to flexible income. However, always make sure you have sufficient cash or a guaranteed income – this could be your state pension, an annuity or defined benefit pot – to cover the essentials. As Covid-19 has taught us all, you really never know what is waiting around the corner.”

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