Covid-19 has put the retirement plans of 3.1 million in doubt, according to a Scottish Widows survey.
And the West Midlands is the worst affected region in the country with 17 per cent of savers feeling the need to reduce or pause pension contributions against just six per cent in the South East and an average of ten per cent across the country.
This is down to above average numbers being furloughed, worries about paying for essentials like food, energy, the rent or mortgage, and twice as many relationship breakdowns.
The virus has seen individuals prioritise their outgoings and it seems pensions is one of the victims.
Pete Glancy, head of policy at Scottish Widows, said: “The crisis has revealed a painful lack of financial resilience in the UK, leaving millions of people exposed with little or no safety net to fall back on. As the full impact becomes clearer, more people may feel forced to pay for today’s essentials with tomorrow’s savings. However, this will only prolong the economic pain of coronavirus and could result in more people facing poverty in retirement.”
The pensions and insurer said such actions would mean people having to work for longer, or significantly increasing how much they save later on, in order to make up the shortfall.
One in five of self-employed workers have cut back, and this is on top of the 41 per cent who in 2019 said they were not saving anything towards retirement.
The coronavirus has affected the majority of people’s savings habits, according to Aegon.
Some are saving more; some are saving less.
Steven Cameron, pensions director, said: “Six in ten have changed their savings levels since the start of the crisis with a stark divide between those who have been able to save more because their expenditure in lockdown has reduced and those who have had to cut back or stop regular savings.
“For those fortunate enough to have continued in employment, there’s been a positive impact. With less money being spent on the daily commute, leisure activities and eating out, many have taken the opportunity to increase their monthly savings by an average of £197. But in sharp contrast, the self-employed and those employees who have been furloughed are most likely to have reduced or stopped savings.”
At the other end of the retirement spectrum, existing pensioners are being further urged to reconsider the amount of income they are taking.
A couple of weeks back we highlighted Quilter head of retirement policy Jon Greer stating: “Someone with a £100,000 pot might have set-up withdrawals of around four per cent, or £4,000 per annum. But if their pot has fallen in value to £75,000 then £4,000 represents a withdrawal rate of around 5.3 per cent a year. They could keep their withdrawal rate fixed at four per cent to preserve the longevity of their pot, although this would see the income from their pension drop to £3,000 a year. Individuals need to decide whether they are willing to forego some income today in exchange for greater income security in the future.”
A report from the Association of British Insurers adds: “Forty per cent of withdrawals were at an annual rate of eight per cent and over, which is not sustainable.
“On average, withdrawing 3.5 per cent from a pension pot annually should ensure a 95 per cent chance of not exhausting savings in retirement; but withdrawing seven per cent only delivers a 60 per cent chance of not running out of money.”
Meanwhile, full withdrawals have risen to their highest level since the pension freedoms were introduced.