Pension crisis: Expert calls on families to embrace ‘intergenerational financial support’
Pensions have seen their values drop in recent weeks as the markets have been impacted by coronavirus panic. Many experts detail this should be a short term effect but that will be of little comfort for people already dependent on their pension income.
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Fortunately, this reality will not affect everyone evenly.
Clare Trott, the Head of Pensions Strategy at St James’s Place, clarified that certain pensions will not be impacted at all: “The key thing to understand is what pensions you have and if these are impacted at all by the current crisis.
“For some there will be no change, such as those in defined benefit pension schemes, as these schemes aren’t directly linked to the stock market.”
While defined benefit schemes will offer protection from coronavirus, their benefits will only stretch so far.
Defined benefit pensions are relatively rare, with most of them being very old schemes and modern workers are unlikely to be offered them.
It is likely that most workers and retirees have defined contribution pensions which Clare commented on: “However, for those in defined contribution pension schemes it will take a little more thought and planning to decide if now is the best time to access benefits.
“There are many options available to limit the impact of any current reduction in the value of your pension.
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“Each case will be different, depending on factors such as how much tax-free cash is available, how much income is needed, and if this is only a temporary need for income or if this is the start of retirement.
“It should be remembered that not all schemes offer the same options, so although it may not feel like now is the time to be moving pension provider, taking the wrong type of benefits at this stage will have an impact for the rest of your life.”
Coronavirus has, unfortunately, put elderly people in a difficult position as they are more likely to feel the effects of pension repercussions.
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Younger workers may still have time to recover from this crisis while the older generation could have limited options.
On top of this, pensioners could be at risk of coronavirus scams targeting retirement assets.
Because of this vulnerability, Clare called on people to embrace intergenerational financial support: “Supporting other generations during this crisis can seem a daunting task if you don’t know what to look out for.
“Some of the questions you can ask yourself are do you have a clear understanding of your parents’ assets, income sources, living expenses and debts? Do they have life insurance or long-term care insurance? Are they claiming all the benefits they are entitled to?”
Discussing financial matters with family members can be a difficult prospect but Clare revealed that the pros greatly outweigh the short-term cons: “Talk to your parents about financial scams in order to help prevent them from falling victim to online or telephone fraud.
“Keep in regular contact (via phone or digitally) and make sure they’re aware that you’re happy to discuss any money concerns that they may have.
“Thinking about money as a family, rather than each generation trying to manage alone, is a great place to start and has the added benefit of introducing younger generations to financial planning.”
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