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This is a four-part series looking at how Covid-19 could affect your retirement plans, for those with 20 or 10 years still to go, those about to retire and those who have just retired.
It is never too soon to start laying out plans for retirement and the pandemic may have thrown short term plans out the window but that does not mean you can’t start to think ahead.
Those who still have a decade before they decide to leave work for good have plenty of time to prepare.
With a decade to go, it is a good time to review your situation and check that you are on track to retire with enough in your pension to live comfortably. The final years of work and saving will be pivotal to ensuring a happy, healthy and financially stable retirement.
If you are only just starting to plan, you should set out a clear plan of what you want to achieve. Set out a budget for what you will need to live on to enjoy your retirement and check how much you have managed to stash into your nest egg so far. Financial advisers call this "cashflow modelling".
For those who had already set their goals, you may have to check back on your pension to see if it has been hit by the stock market crash this year.
Those who have fully or partly invested their pension in the stock market will no doubt have been worried about the ongoing turbulence and what it means for their hard-earned savings.
Confidence has dropped significantly among those over 50 since the pandemic, with only 22pc of men and 12pc of women confident they will have enough money for a retirement income, according to figures from SunLife, a financial planner.
Many savers have been forced to reassess their future plans and retirement goals this year, with one in eight of those aged 45 or over saying they have had to make changes, either cutting contributions or withdrawals or when they will retire, according to a study by Moneyfarm, an investment service.
Confidence levels for retirement
As you approach retirement it is important to know where your pension is against your goal, but not to check it every day, said Tom O’Brien of wealth manager Brewin Dolphin. A decade is still a longer-term investment for most people, so you should try to stick to your bigger picture plans.
However, you should check to see if you are signed up to a “lifestyle” fund, particularly if you haven’t many an active choice about where your work pension scheme is invested. “These funds can protect your cash and lock in gains when you need it, they can also create market timing risk. The schemes begin to sell out of riskier assets, such as stocks, the closer you get to retirement – typically with 10 or five years to go – and buy bonds or move into cash,” he said.
This means that your pension fund may sell your stock holdings at a time when their values are depressed, locking in the losses your pot suffered at the beginning of the year.
Whether you are in your 40s or 50s, it is a good time to maximise pension contributions because your earnings are likely to be near their peak and you will have paid off some big expenses such as a mortgage. You are also more like to be a higher-rate, 40pc, taxpayer and so will receive more tax relief on any contributions.
However, many have lost their jobs during the pandemic and been forced to pause pension saving. Be sure to account this into your plans for retirement if this is the case.
Six things you can do with your pension from 55
You should also form a view on whether you plan to buy an annuity or keep your fund invested and take an income using drawdown, according to Steven Cameron of Aegon, a pension provider. The way your pension is invested should differ depending on your decision.
The process of workplace pension default funds selling out of more risky investments, as described above, is a good strategy for those who are planning to buy an annuity, which provides guaranteed income for life.
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However, investing in Government bonds is likely to result in small investment returns, so if you plan to remain invested and draw an income directly from your pot when you retire then it may be too soon to switch assets. Those who do may lose out on the returns they could otherwise have had, Mr Cameron warned.
It is good news for those in gold-plated defined benefit pension schemes as they will have been largely unaffected by the pandemic because their income is guaranteed.
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