PMI: To talk through how to support employees and members with their retirement planning in light of COVID-19, I’m joined down the line by Jonathan Watts-Lay, Director at WEALTH at work.
So, Jonathan, what are the key issues that individuals face at retirement in the light of COVID-19?
Jonathan Watts-Lay (JWL): I think one of the key ones is the volatility. So a lot of people that are coming up to retirement, or perhaps thinking about retirement, will see that the values of their pensions has certainly gone down and has been quite volatile in the last few weeks and that could make them think again about their retirement or what income they might generate. Of course, it’s not just their pension, either. There might be other assets that they were hoping to use in order to have income in their retirement; so ISAs, for example, might be a good example of that if they’re in a stocks and shares ISA. So that volatility certainly means that people need to have a think about their retirement plans. I guess that’s the key word, it’s that they need a plan.
I think the other thing as well is the cashing out. So clearly, people that are thinking about retirement, when they see that volatility, there may be a temptation to cash out. But if they do that, then clearly there could be tax implications of that – so that’s not necessarily the right thing to do. But also anecdotally, we’ve also seen people that are age 55 and over, and therefore can access their pension, asking questions about whether they should. Actually, because of the issues around household incomes, COVID-19 has clearly reduced household income for a lot of people. So people are now looking at a pension not for retirement purposes, but actually to fill a hole in their household finances. And again, clearly this can have implications in terms of taxation. It could have implications in terms of the money purchase annual allowance, so again, it’s thinking about the things or the assets they might have that they can access. Or maybe taking advantage of some of the cost saving initiatives that the government’s brought in; so mortgage holidays or debt deferment.
I think the other one, which again we’ve seen raising its head again, is the whole scamming issue. So we know that there are an increasing number of scams out there. I read that the City of London Police said that fraud had gone up by 400% since COVID-19 had occurred. Now, of course, that’s not all pension fraud, but undoubtedly some of that will be in the pension area.
So a lot of things that people need to think about.
PMI: And given that backdrop, what can employers do?
JWL: I think employers really need to make sure that individuals in the lead up to retirement understand what their options are. So a lot of employers have put in place guidance and support for individuals, certainly as they’ve turned 50 and they’ve had to start thinking about glide path; so how they’re invested in the run up to retirement. But a key part of that is ensuring that individuals not only understand what options they have, but also what are the generic advantages and disadvantages of those options. So are they looking to go towards an annuity? Are they looking towards going to drawdown? And how might that decision change as they go through the years leading up to retirement? So I think there’s an increasing amount of support that’s required there.
I think one of the interesting things as well is, there’s been a lot of initiatives around financial wellbeing, generally, within the corporate space in recent times. And I think now we’ve got this COVID-19 and the financial implications of COVID-19 will really test to see whether employers are stepping up and making sure that they’re giving the support that those individuals need. I think a lot of that support will come in the form of financial education and one-to-one guidance.
PMI: And are Trustees likely to be pursuing a similar path to that which you’ve described for employers?
JWL: I think they are. There’s a lot of pressure as well, I think, on Trustees. The regulator has put out a number of guidance notes since COVID-19 occurred and they’re using language such as ‘Trustees need to step up by whatever means they can’ because I think it is this whole notion that, particularly for those in the lead up to retirement, that they’ve been saving diligently – one hopes – for 40 years, the Trustees have been running the scheme equally in a very diligent way, and yet wrong decisions at the point of retirement can mean all those marginal gains through good governance just get lost in a nanosecond, potentially, so the support is really, really important. And of course, at the end of the day, people only save into pension plans so that they can derive the benefit when they retire in terms of the income they get. Whereas if they make poor decisions, then that will clearly influence the amount of money they have in their back pocket every week/every month in retirement. So having a process in place and ensuring the Trustees have that in place is so, so important in the lead up to retirement.
PMI: And how are the delivery mechanisms for pensions changing, given the current environment?
JWL: Yes, so there’s a key change here, which is the obvious one, which is people can’t go into meeting rooms so typically, where there might have been a lot of seminars going on for retirees, clearly that cannot take place anymore. So the two key changes we’ve seen is the use of webinars, so getting groups of people together on a webinar, which replicates the seminar to a certain extent. Although it is fair to say that (as I’m sure anyone who’s been on a conference call with a number of people on it) it doesn’t quite have the flow, perhaps, that you would have at a seminar and perhaps it doesn’t quite have the richness of debate of delegates that you would get if everybody was in a room.
But having said that, we’ve certainly done a lot of development work on webinars, and I think some of the nuanced behaviours, if you like, of using webinars we’re learning from and they are improving. So a lot of employers are certainly putting those in place, and we’re running quite a lot of those at the moment.
And the other key change is a lot more one-to-one guidance either telephone calls or virtual meetings, particularly for those people that are looking to retire in the next few months. So people that need help, they need help now, actually there’s additional complications because of COVID-19 and the impact that might have had on the fund available. So people need to talk – clearly they can’t do it face-to-face, so that telephone and virtual meeting again has really taken off in the last few weeks.
PMI: And do you see any long term implications for retirement planning as a result of COVID-19?
JWL: Well, I think the jury’s probably still out in terms of certain behaviours. So, for example, there has been some debate about, because household income will be going down, does that mean people will contribute less into pensions? In the first instance? There’s no real evidence of that yet, but that may appear over the coming weeks and months.
I think anecdotally also, there’s this issue around people that have got to the age of 55, so can access their pension; are they accessing it because they’re retiring? Or are some of them going to access it because, actually, they just need extra money? And again, we need to wait and see. I think it’s over the next few weeks we will see if this does really materialize. That anecdotal evidence. So I think that’s one thing.
I think the other thing is around making sure that there are proper processes in place because I think now, there’s a massive void between, if you like, at worse getting scammed and at best making a real informed choice about your retirement, given all the complexities. So I think there needs to be a stepping up generally towards that. But the good news is a lot of organisations are. Certainly, we work with a lot of employers and Trustees who are really stepping up and making sure that there are better outcomes. And at the end of the day, you never have an individual, or you never have a member of a pension scheme or employee, turn around after those sorts of interventions and say ‘that was a waste of my time’. They always respond with ‘that is so valuable, what I’ve learned’. So we know it’s the right way to go.
PMI: We have to leave it there. Jonathan Watts-Lay, thank you for joining us.
JWL: Thank you.