Pension: Retirements facing ‘pressure’ as contributions drop and families are supported

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Pension savings are built up throughout a person’s working life and are supposed to provide a stable source of income for retirement. However, given the impact of coronavirus traditional financial plans have had to be re-evaluated this year and new insight shows those reaching their later years could be hit the hardest.

Recently, Key Retirement Group conducted a survey of 1,000 people who expected to retire during 2020.

The results revealed 34 percent of the respondents are continuing to financially support their families with regular handouts amounting to over £3,700 a year which, while being kind and necessary, it limiting how much money can go into their own pensions.

Additionally, 12 percent of respondents contributed £500 or more a month to their family, equating to £6,000 per year.

Will Hale, the CEO at Key, commented on the company’s findings: “Whilst many older people enjoy treating their loved ones – even if it is just paying for a nice meal – a third of those who intend to retire in 2020 are doing more than this – regularly topping up their wider family’s finances.

“The current economic situation is likely to place even more pressure on people’s finances but with the pandemic impacting pension savings this could see some retirees having to tighten their belts and could impact their ability to continue to support younger generations.

“It is important that families have open discussions about their finances.

“Many younger people would be horrified if they knew older members of their family were struggling due to their generous natures.

“Taking the time to speak to a specialist adviser is a sensible step to look across all your assets and understand how much support you can provide.”

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This problem could be exacerbated by recent changes in pension contribution trends.

Interactive investor examined data from the ONS and Bank of England and while they found pension contributions have risen in recent months for younger workers, those aged between 56 and 65 saw their pension contributions decrease by 3.6 percent.

Becky O’Connor, the Head of Pensions and Savings at interactive investor, examined the trends: “Our SIPP figures show a significant rise in contributions this year.

“This suggests that people in their thirties and forties were being sensible with the money they were saving during lockdown and squirreling it away for the long term.

“It’s positive to see these younger investors not afraid to up their investments and take advantage of lower stock prices after the initial crash.

“Whereas older groups, from this data, appear to have been more cautious.”

Fortunately, while those approaching retirement have had a tough time financially in recent months, opportunities for a savings rebound could be on the horizon.

The same research from interactive investor showed there was a general increase in savings deposits during the first lockdown.

With a second one on the horizon, it’s possible similar actions could be taken, and Becky went on to lay out the benefits of utilising pensions for long term savings plans: “Having emergency savings can give peace of mind that you can survive for a while should the worst happen and you lose your job, or you suddenly need to shell out for something big.

“How much cash to keep in instant access savings will depend on personal preference, although three to six months is a good aim.

“But people should take care that over the long term they do not unnecessarily lose money, in real terms, by keeping all their assets in cash.

“For money you don’t need for many years, consider investing in ISAs or SIPPs instead. This way, your money at least has a chance of growing enough to generate a real return.

“Adding to a pension means your money also benefits from tax relief and for younger age groups, hopefully decades of investment growth.”

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