The FCA’s Financial Lives 2020 survey confirms that the coronavirus pandemic caused a near-25% rise in adults with “low financial resilience” between March and October 2020. Signs might include over-indebtedness, irregular income, or having a low level of savings.
Back in October, we asked are you prepared enough to cope with a financial shock? Since then, England has endured a second and a third national lockdown.
With a roadmap out of restrictions now in place, are you set to emerge in a strong financial position? If not, Globe IFA’s expert advice can help.
Keep reading to find out how.
Financially struggling, some raided their savings and even their pensions
One in three UK households suffered a drop in income between March and October last year. The impact was worst for the self-employed, with three in five (61%) seeing their financial situation worsen.
If coronavirus forced you to draw on savings to cover day-to-day expenses, you are not alone. A third of adults (32%) have done so, while one in seven (15%) have seen their unsecured debt levels rise.
Worryingly, 58% of those who retired between March and October 2020 did so because of Covid-19. Of UK adults aged 50 or over, who have not yet retired, 14% confirmed that that coronavirus has affected their retirement plans.
Dipping into savings and accessing your pension early can have serious repercussions. The coronavirus pandemic has highlighted the need for a robust and long-term financial plan.
How financial planning can make you more resilient
1. Emphasising the importance of a “rainy day” fund
An important part of any financial plan is a rainy day fund for use in emergencies. It is especially important if you have dependents relying on your income.
We would recommend an emergency fund totalling three- to six-months’ worth of your household living expenses.
This fund will ensure that you can continue to pay the mortgage, household bills, and other potential expenses, such as school fees if the unexpected happens. This could be an accident, illness, or a sudden job loss.
Those with a financial plan – and therefore an emergency fund – when the pandemic arrived, will have had easily accessible funds to fall back on, increasing their financial resilience.
2. Helping you keep your retirement dreams on track
With our decades of combined experience, the financial plan that Globe IFA put in place for you will be based on your personal circumstances and aligned to your goals. If your goals don’t change, your plan doesn’t need to either.
Of the 58% who accessed their pension last year because of coronavirus, 40% of those did so for reasons outside of their control. Reasons included redundancy, illness, and giving financial aid to a child struggling financially due to the pandemic.
There are long-term consequences to taking your retirement earlier than planned. The decision might impact your goals, forcing you to compromise on your retirement date or your lifestyle in retirement.
Accessing your pension earlier than planned means:
- You will need to budget for much longer, ensuring your fund lasts for thirty or even forty years.
- You might trigger the Money Purchase Annual Allowance (MPAA), severely affecting your pension growth and the size of your future pot.
- Taking out large sums to cover short-term expenses could lead to large tax bills.
Taking your pension earlier than planned could affect your financial resilience, forcing you to work for longer or to live less comfortably in retirement. If your plans or priorities have changed and you are thinking about accessing your pension early, be sure to speak to us before you decide.
3. Helping you protect the ones you love
More than a year on from the start of the UK’s first national lockdown, the need for financial protection against the unexpected has rarely been clearer.
Just last month, we looked at 3 important reasons why you need protection in place now and we can help find the right products for you.
If you have dependents that rely on your income to pay household bills you should consider income protection and critical illness cover. Knowing that you have protected yourself and your family against the unexpected will give you all peace of mind.
You should also consider life insurance. We can help you check the cover you already have in place and find any gaps where your finances could be exposed to shocks. Remember that some forms of cover have set terms that may have ended or might have been attached to employment that has ceased.
We can find the right policies for you, ensuring that your mortgage, household bills, and your child’s education will still be covered should the worst happen.
Get in touch
The coronavirus pandemic has affected the financial resilience of many. With a financial plan in place, though, you will have peace of mind that your plans don’t need to change unless your goals do and that your family will be protected whatever the future brings.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation which are subject to change in the future.