Running out of money mid-retirement is a daunting concept but it’s a risk that many of us face if we don’t pay attention to our financial planning and pension savings. A recent research study found that three out of every four people in the UK risk outliving their savings in retirement.

Pension freedoms introduced in 2015 have undoubtedly played a part in this worrying forecast, as savers are taking advantage of the greater flexibility they enjoy with their retirement pots, often to the detriment of the long-term financial vision.

Many of us do not understand how long our pension needs to last and underestimate the very real financial risk that we face with longer life expectancies and the need to stretch our savings for longer. A research survey conducted by YouGov found that just under half (48 per cent) of savers do not know how long their retirement savings will need to last them. This is not those savers for whom retirement is a distant concept, as almost half (45 per cent) of the group surveyed is currently aged 55 and above.

Understand your Goals

As a good first step, it is important to establish your retirement goals. The YouGov survey showed that nearly a third (28 per cent) of all respondents had no idea what to do with the savings they had built up for retirement. In addition, more than a third (35 per cent) said that they do not know when they will retire, with 22 per cent of those aged 55 and over.

However, the majority of respondents stated that they were very open to taking advice on how to make their savings last long-term which makes this an important opportunity for employers guiding their team towards good financial wellbeing. Things are already moving along a positive tract as the global pandemic has had a major impact on our retirement plans.

With COVID-19 providing a “useful test of how far your money might stretch” without the cost of commuting and with reduced day-to-day living costs, there has been a positive shift as more people have become more mindful about their financial health. The over-50s in particular have taken a step back to seriously reassess their priorities and seek financial guidance.

Understanding your goals means asking the important questions. This might include where you want to live (do you dream of living abroad post-retirement?) and whether you wish to stay in your current property or downsize – many retirees with dependents will do the latter in order to help them onto the property ladder or support them in other key financial goals. The question of when you want to retire is also crucial.

Adjust your Products

One mistake that people make is establishing plans and leaving them unattended. Regular reviews are essential to ensure that your savings and investments are arranged most effectively for your current circumstances and future goals. This is especially pertinent when it comes to your retirement as things are likely to evolve and change.

In the light of COVID-19, many of us face new and unexpected challenges to our retirement journey including increased risk of lower income in retirement, decreased value of assets in retirement savings accounts from falling financial markets and an increase in liabilities from falling interest rates in retirement savings arrangements with retirement income promises (e.g. life annuity arrangements). Those of us who have had a wage reduction or lost their jobs may also see their savings plans compromised.

While the government has introduced a number of policies to minimise the financial impact of COVID-19 – and continue to do so – it is important to review and adjust (where needed) your pension products to the most appropriate ones in line with your evolving circumstances. There is no need to panic or make rash decisions, it is simply about doing all you can to minimise the impact.

Increasing Engagement

Employers should also note the need for regular reviews with their workplace pension scheme – two of the six principles of good governance are designed for this exact purpose. In order to satisfy the auditors, the principles include that your current workplace pension scheme remains fit for purpose – have you reviewed your pension scheme charges, investment performance and employee support capability?

In addition, you will need to prove how well you continue to communicate with your staff. Increasing and encouraging pension engagement will all help to ensure realistic and achievable financial outcomes in retirement. Master trusts are one area that employers could explore as these provide a flexible structure in which to meet the needs of a range of employees although care should be taken as they will not be suitable or appropriate for every business. For advice and support with auto-enrolment and establishing effective pension savings schemes for your workplace, contact us today.