We have all been affected by the coronavirus pandemic. The lockdowns and tiered restrictions of the past eight months have had a devastating emotional and financial effect, but particularly so for those who run or work for our smaller and therefore more vulnerable businesses.
Recent research we undertook found most SME businesses had seen the mental wellbeing of their workers impacted by the pandemic. Thirty-nine per cent of the employers surveyed said employee mental wellbeing had been worsened by concerns about their physical health and that of their loved ones, while 42 per cent cited the added stress of job insecurity.
The impact on workers’ personal finances has also been concerning, with income often disrupted. According to UK Finance, banks and lenders have so far agreed more than 700,000 personal loan payment holidays, one million credit card payment holidays and almost two million mortgage payment deferrals.
Of course, having more time to pay your debts only delays the problem. Debt charity StepChange estimates 4.6 million people will have their finances negatively affected because of coronavirus, accumulating an extra debt burden of £6.1bn. Among this group, average debt will rise to £997 per household, along with a further £1,076 in increased arrears.
Lateral thinking may be useful here. These days, almost all employees are accumulating pension savings through the workplace. The auto-enrolment reforms have changed the long-term savings market in the UK and, before the pandemic at least, many commentators regarded the main issue as being how those savings could best be maximised. I agree with that aim: the more people defer income and put it away for the future, the better it is for them and for everyone else.
But pension savings are locked away for many decades before they can be accessed and I think that needs to change before any serious increase in future savings levels becomes likely. It would clearly be useful if people could access funds held in their pensions at times of severe economic hardship, and return the money over a period — say five to 10 years — when their financial situation had improved.
It would be interesting to model what that could look like if the 25 per cent tax-free cash element of pension savings could be made available for employees at any age as a hardship withdrawal — the terms of which could be set and governed by legislation. Hardship payments in such circumstances could be made free of tax as long as the loan was repaid in a specified time.
What better way to make pensions seem more relevant than to allow employees to temporarily borrow such savings from their future selves in times of trouble?
Steve Bee is director at WorkLife by OpenMoney
I agree, Steve, that could be a good solution, but in most cases pensionholders will need advice and guidance. This means that advice needs to be available and affordable, and the regulator needs to view this advice as being mainstream and acceptable. Generally, however, most of the people with meaningful pension assets are those in DB schemes. Will the trustees want to get involved in all of the associated calculations and admin (incl collecting the repayments)?
And then what? Live on state benefits when the money runs out? If you start taking benefits at (say) 58, unless you have a 7 figure pot, you are not likely to see much left my the time you get to your 70’s
Quite. And if, as Steve proposes, the 25% withdrawn early is treated as a loan that isn’t repaid, there’ll be a tax charge against it which could well make things worse. Also, given that most retirement funds are pretty small in their early years, how much would 25% of them be? Peanuts. I see no prospect of this idea being accepted by the powers that be.
Couldn’t agree more. Wonder if this is being given serious consideration at Government level?