2020 was supposed to be a big year for pensions. The long-awaited Pensions Dashboard was due to go live and investment help for those unlocking their pension savings introduced. But, thanks to the coronavirus pandemic, both have been delayed.
Yet that’s not all that’s happened to pensions this year. Global stock markets have plunged significantly, meaning that many pension pots have shrunk and, while the government’s new scheme to pay wages for furloughed staff will take on employer contributions, it will only pay the minimum.
Read the latest coronavirus news and advice from Which?
Here, Which? rounds up how coronavirus is affecting pensions in more detail.
1. Pensions Dashboard delivery delay
The Pensions Dashboard, which was confirmed in last year’s Pensions Bill, has been delayed further due to the fallout from the coronavirus pandemic.
It was meant to go live last year but was put on hold because of Brexit and the November general election.
The Dashboard Delivery Group – established by the Money and Pensions Service (Maps) – said that although the industry has called for a clear delivery timetable with firm dates, it’s unable to provide further information at this time.
In a 31-page document published on 8 April, the group flagged that there are ‘significant’ delivery challenges because of the pandemic. It also noted it would look to provide certainty ‘as soon as possible’, but the scale of the project, delays to regulation and trying to get all forms of data onto the dashboard have made this difficult.
The delivery group’s principal, Chris Curry, said even when the impact of the coronavirus pandemic has decreased, ‘timescales depend heavily on factors including technological developments and the progress of government legislation’.
Which? published a report on the Pensions Dashboard in February 2018 to address some of the key questions and concerns over how it will work for pension savers.
- Find out more: if you’re trying to get a picture of where you stand before retirement, you can use our range of state pension, company pension and personal pension guides.
2. Pension investment pathways paused
The Financial Conduct Authority (FCA) confirmed on 7 April that the implementation of the new default investment pathways scheme will also be delayed as a result of COVID-19.
The initiative, which was confirmed by the financial watchdog last year, means pension providers must offer their non-advised customers four investment strategies that suit their needs.
The four pathways outlined by the FCA are for:
- Those who do not plan to withdraw their money in the next five years
- Those who plan to buy guaranteed income with an annuity in the next five years
- Those planning to take long-term income from their pension within the next five years
- Those planning to cash in their whole pension within the next five years.
- Your provider can then offer the best method of managing your fund based on the objective you select.
The FCA came up with investment pathways so that savers accessing their pension can get investment guidance without needing to take financial advice. It’s hoped this will give them clear and simple choices as to how to manage their pension or generate a retirement income.
Instead of being introduced on 1 August, the initiative is now delayed until February 2021. The FCA says that, while the pathway rules were ‘already made’, they’d been passed to the FCA board for it to consider whether to delay them due to the coronavirus crisis.
- Find out more: you can research your options for cashing in your pension using our guides
3. Pension contributions for furloughed staff
Last month, the government confirmed that grants to pay workers’ wages during the pandemic would also cover employer auto-enrolment (AE) pension contributions.
This forms part of its ‘job retention scheme’, in which the government agreed to pay 80% of the salaries of employees who are asked to stop working but kept on the company payroll.
The rules – which apply to furloughed staff enrolled into a defined contribution (DC) workplace pension – will see the government pay minimum AE employer contributions worth 3% based on the furloughed salary, which will be capped at £2,500 a month.
However, you’ll still have to pay your minimum contribution, which has been 5% since last April.
The government will continue to give you tax relief on your contributions; basic-rate taxpayers get 20% pension tax relief, and higher-rate taxpayers can claim 40%.
- Find out more: discover how the AE furlough initiative works and how it could affect how much is in your pension pot in our detailed analysis
4. Pension pots suffering from stock market turmoil
The coronavirus pandemic has also massively affected the health of the stock market, meaning that if you have private or workplace pension, your savings have probably been hit quite hard.
At least some of your pension is likely to be invested in the stock market, such as the UK’s FTSE 100 index, which measures the performance of the biggest UK companies. At the time of writing, the FTSE 100 had fallen by 26% since the start of the year, and markets have been extremely volatile due to the uncertainty around the pandemic.
On the other hand, the value of defined benefit (DB) pensions, which are calculated based on your final salary, will not be affected by market turmoil.
It’s your employer’s responsibility to make sure there’s enough money in the scheme to pay you upon retirement. If your employer doesn’t have the funds to pay your pension, the Pension Protection Fund will cover most of your money.
- Find out more: for more detail on the impact that the stock market turmoil is having on pensions and what you can do about it, take a look at our story how coronavirus is affecting pensions and investments.