What is pension panic? Put simply, it is the feeling of fear that appears as one approaches retirement.
Indeed, those approaching the age of 55 will be all too familiar with this feeling – questioning whether they will have enough money to live off, wondering if their pension pot is working hard enough and when they will be able to access their hard-earned savings.
Pension panic is not a new phenomenon. However, it has been amplified in recent months as a result of the coronavirus pandemic.
Why the panic?
The onset of the coronavirus and subsequent lockdown has caused huge disruption to almost every element of our day-to-day lives. What’s more, it’s been extremely damaging to the UK jobs market.
As of mid-June, more than one in four UK workers were reported to be furloughed, while over 2.6 million self-employed people had applied for financial support from the government.
Unfortunately, the UK’s predicament seems set to get worse, with British business executives predicting that 3.5 million people will be unemployed by the end of 2020.
These statistics are a confronting reminder of how many people’s livelihoods have been put at risk by the coronavirus. And with people’s income threatened, many have been forced to rethink their long-term financial plans.
So, for millions of Britons, pension pots have taken on an added importance. Whether it’s reassessing their current retirement plan to ensure their current living standards are upheld throughout retirement, or withdrawing a lump sum from their pension to ease immediate cashflow issues – pensions are under the microscope and some are panicking.
Unfortunately, pension scammers are poised to capitalise on this panic. In the first five months of 2020 alone there were more than 2,100 cases of fraud in the UK, costing victims up to £5.14 million, according to Action Aid.
Pension scammers are able identify and exploit various consumer concerns. For people worried their pension isn’t working hard enough, scammers offer ‘free pension reviews’, all of which will conclude that a pension pot would offer ‘better returns’ in an extremely risky and unusual investment, such as storage units.
Others will take advantage of households’ cash-flow issues and claim they can grant under-55s early access to their pension. Consequently, the consumer faces a tax bill of 55% on the amount withdrawn – and this is on top of the money lost in the scam.
Pension savers must remember that they are able to check and confirm the legitimacy of any ‘adviser’ by searching the business on the Financial Conduct Authority’s (FCA) Financial Services Register. If they are not on the register, then it is likely a scam and contact should be cut immediately.
Combatting pension panic
So, the key question now is how can consumers avoid pension panic and consequently avoid making ill-informed financial decisions? The answer is simple – seek independent, regulated financial advice.
While it is a legal requirement to seek financial advice when cashing in a pension worth more than £30,000, this does not mean that consumers cashing in less should overlook the importance of advice.
Indeed, many wrongly dismiss its value because they believe that can develop their own retirement strategy, their workplace pension is all they need, or it is too expensive.
On the contrary, pension advice is a necessity for all – and it does not come with an overwhelming price tag. Consumers should really question whether they can afford not to seek advice.
The value of advice
There is no such thing as a one-size-fits-all retirement model. Even if consumers understand the pension basics, they may be overlooking a certain product that could enhance their retirement lifestyle.
For example, consumers may assume that the most logical option for them is to leave their pension untouched for as long as possible, and watch it increase in value overtime. However, this may not be the best financial option for them.
There are a multitude of choices available to consumers; they just need to be open to investigation.
Take annuities, for instance. These are retirement income products which are bought with a pension pot and could provide retirees with peace of mind by offering a fixed income for life (or for a specified period of time agreed with an annuities lender).
Alternatively, flexible access drawdown, offers those over 55 the freedom to take out the tax-free cash from their pension pots, leave the balance of the fund invested, defer income or take and vary income to suit their specific needs.
Of course, such options will not work for everyone, but therein lies the value of an independent financial adviser.
They are able to review all financial options available and are able to advise on the most suitable choice in accordance with a client’s specific needs. Then, consumers are able to confidently make a well-informed decision free from panic.
Pension panic can be an issue for consumers of all ages – and this has been amplified by the financial pressures imposed by the coronavirus.
That said, it can be combatted by seeking independent financial advice. By providing a thorough assessment of all financial options, consumers can choose the best option for them, and make pension panic a thing of the past.
Andrew Megson is the executive chairman of My Pension Expert, an advised retirement income specialist
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