How will the Covid-19 pandemic affect employees that are due to retire this year?

Need to know: 

  • Employers need to ensure that employees know what is happening to their pension investment funds and retirement plans.
  • A comprehensive communication strategy is needed to ensure employees are aware of their options at retirement, even in a pandemic.
  • Communications must be tailored to the individual and depend on their circumstances, such as how far out from retirement they are.

The Covid-19 (Coronavirus) pandemic has affected peoples’ lives in many ways, and retirement plans are no exception. Research by Legal and General Retail Retirement, published in June 2020, found that 15% of UK workers in their 50s plan to delay their retirement date by an average of three years due to the impact of the virus. Additionally, 10% said that they could end up delaying their retirement plans by five years or more and 26% anticipate having to keep working on a full or part-time basis indefinitely.

So what communications should employers be passing on to employees who are planning to retire in the near future? 

Retirement equity

Employees that are due to retire this year may not experience too many difficulties due to the fact that they would have begun preparations for their retirement in the years leading up to their chosen date. 

However, some employees may have to put more into their retirement funds. Martin Parish, area director at Aon, says: “Through market research, there is nothing to suggest just yet that there is anything that will significantly impact employees who have retirement plans close by. 

“However [for] those that are planning to retire, and take a natural yield of investments as income, it will be interesting to see what impact the pandemic will have on dividend funds.” 

Although those employees set to retire in the next three to six months may not be hugely affected, those who still have 12 months before their retirement date need to be reassured and not withdraw funds from their pension savings now.

The world of pensions will be changed post-pandemic, says Karen Bolan, head of engagement at AHC. For those plans currently in deficit, repayments made over a longer period of time will help schemes get back to financial safety rather than forcing an employer to make drastic changes now. “I think it’s inevitable that as we come out of this pandemic we will see pension schemes seeking benefit changes,” explains Bolan. “Employers may look at their pensions schemes and see if they can reduce their liability and reduce risks.”  

Employers may consider changes to member rates and contribution levels to remove the pressure from themselves and to help deal with any long-lasting financial effects of the pandemic. 

Investment performance

Some employees may see a downturn in the value of their pension investments and may feel apprehensive about their performance in the current climate. However, employees close to retirement that have been put in a difficult financial situation may feel forced to withdraw funds from their pension savings earlier than planned to cover living expenses. 

It is important for employees to fully understand how their funds are performing at this time. Matt Mitten, partner at Secondsight, says: “Time is our friend when it comes to pensions, people need to know what is happening in their pension funds. If an employee is close to retirement they shouldn’t have much equity in their portfolio. 

“Many default funds have mentioned that they’ve dropped by only 6% over a three-month period and we’ve seen many businesses recover since the end of March.” 

Employee communications

How employers communicate with staff is also key. A one-size-fits-all communications approach may not be the best solution when delivering pension and retirement news to employees during the pandemic

Laura Stewart-Smith, financial education manager at Aviva, says: “Whether people are three months or three years from when they were hoping to retire, many of their questions will be similar. And it’s worth remembering that anyone over 55 can now access their pension savings, so anyone in this age group should be considered in any communications planning.”

Financial education seminars are a good means of getting important messages through to employees. “At Aviva, we’ve switched to providing [seminars] online allowing large numbers of people to join,” says Stewart-Smith. “Employees may also value being introduced to a financial adviser or signposted to government agencies such as the Money and Pension Service or Pension Wise.

“Overall, communication around pensions, from employers to employees, at this time needs to be handled sensitively, and also considered as part of the wider wellbeing and culture programme.”

For employees that are looking to retire soon, it is important that employers understand individual’s circumstances, and find the best ways to support them through this difficult time. Jonathan Watts-Lay, director at Wealth at Work, explains: “We have always encouraged employers to provide support to their employees at retirement but it is even more important now under the current circumstances. Providing financial education and guidance is the one thing employers can do to help their employees make informed decisions.”

Financial education at retirement can be delivered in a number of different ways and although face-to-face seminars remain a popular communication method, this may not always be possible. A range of delivery methods such as one-on-ones and webinars can ensure the majority of members are supported whether they work remotely or not and can also ensure a solution for deferred members,” says Watts-Lay.

However far away from their retirement date, employers need a comprehensive communications strategy to ensure their workforce is fully aware of their choices prior to leaving the workplace. This is evermore important against the backdrop of the Covid-19 pandemic when employees will be looking for clarity and assurance about their pension investment.