How Covid is changing retirement plans
4 October 2020
The Covid-19 pandemic has derailed older workers retirement plans, new research by the Institute for Fiscal Studies (IFS) has revealed.
Nearly one in 10 (8%) workers plan to retire later than they had previously intended, with this trend more prevalent among those with a pension fund that has fallen in value and those working from home.
However, 5% plan to retire earlier than they had previously intended, particularly among wealthier households and those on furlough.
The findings by the IFS also showed 6% of those aged 66-70 who were working immediately before the crisis are now retired, rising to 11% of those aged 71 and older.
The change in plans comes as almost a third of older workers report that their financial situation has worsened as a result of the crisis, with the IFS noting that the crisis had widened financial inequalities among the older generation.
Meanwhile, concerns about job security are prevalent and not just restricted to those who are on furlough, the research found. Among those in employment, almost a quarter are either somewhat or extremely worried about their job security.
Among those whose income has fallen since the outbreak of the pandemic, nearly a quarter (23%) have household net financial wealth of less than £500 per person. As a result of their falling income, 5% had withdrawn pension savings, 4% had borrowed from a bank and 5% had borrowed from family or friends.
Heidi Karjalainen, research economist, IFS, said: “The personal finances of many older adults are being hit by the fallout from the coronavirus pandemic. While many have wealth to help them smooth income shocks, this is by no means true of all. The crisis risks worsening financial inequalities.
“Older adults are also more exposed to financial hits to their pension saving, because being closer to retirement there is less time for fund values to recover before they might want to start drawing on their wealth. Crises like the current one highlight the risks that arise when individual saving is increasingly important for securing living standards in retirement.”
Rowena Crawford, associate director, IFS, commented: “The current pandemic risks having serious and long-term financial consequences for older workers, affecting living standards into and through retirement. Those on furlough are now more likely than those working to be planning to retire earlier and it will be important to monitor that this does not represent a rise in involuntary retirement among people discouraged from finding new work.”
Crawford added: “On a positive note, those working from home are now more likely to be planning to retire later; suggesting changes to work practices could benefit some older workers.”
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