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How has Covid affected people's retirement plans?

Couple in their 50s walking through a Christmas market

It's been a turbulent two years, to say the least. When it comes to household finances and savings, some people have struggled with a drop in earnings while others found that they were able to save more during lockdown.

One knock-on effect is an impact on people's retirement plans, recent studies suggest.

The polarising impact of the pandemic means that the prospect of an early retirement appears more achievable for some, while others are adjusting for a delay before they can stop working.

More than half of UK adults say that the impact of Covid-19 has affected their plans to retire, and figures from the Financial Conduct Authority (FCA) show that there has been a decrease in people accessing their pension pots for the first time.

Those approaching mid-life feel the biggest negative pressures on their retirement plans, according to a survey by Aviva.

While some people envisage retiring earlier and have gained confidence about living comfortably once they retire, nearly one in five (18%) feel less secure about their financial future. This rises to more than one in four (27%) among those aged 35-44.

Across the generations, the 35-44 age group are the most likely (68%) to have felt some impact on their retirement plans from the pandemic. The impact has been positive for some, including one in ten who used lockdown to save more for their retirement. But almost one in six people (14%) aged 35-44 anticipate their retirement date may be pushed back, and 16% have lost confidence in their ability to live comfortably once they have retired.

Two in five (41%) of all those surveyed said that life during Covid-19 has encouraged them to build more long-term savings. People aged 35-44 are most likely to feel compelled to save more for their futures (54%), followed by those aged 25-34 (51%).

Alistair McQueen, head of Savings & Retirement at Aviva, said that while it's encouraging to see people striving to build up their long-term savings, "our findings show anxiety about the future is still weighing heavily on their minds".

Amid the economic uncertainty brought by the pandemic, the FCA's latest retirement income data reveals that fewer people opted to start accessing their retirement savings in the past year.

The total number of pension plans accessed for the first time decreased by 12% in the 12 months from April 2020 to March 2021 compared to the previous year, according to the FCA's Retirement Income Market Data report. A total of 596,080 pension pots were accessed for the first time, down from 673,831 in 2019/20.

Annuity purchases also continued to decline, with the number of pots used to buy an annuity falling by 13% to 60,383. More than half (59%) of the annuities were taken by people over the age of 65.

And pension plans fully withdrawn at first time of access in 2020/21 fell by 9% to 341,404. Nine in ten of these were for pot sizes less than £30,000.

Commenting on the FCA report, Andrew Tully, technical director at Canada Life, said that people have been "paralysed by the pandemic", with many deciding to wait until things settle down before making long-term decisions about their retirement income.

Posted by Fidelius on December 20th 2021

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