Is a recession the best time to start a pension?

Laura Miller

by , Freelance financial journalist

at PensionBee

17 July 2020 /  

July 2020

Coin being placed into a pink piggy bank with a bright but blurred background

Lockdown has revealed to many of us what a sudden cut to our income really feels like. Now may not seem like it, but this is exactly the right time to review your pension if you have one, and start one if you don’t.

80% of your salary (up to £2,500 a month) on the government’s furlough scheme is significantly better than nothing. But a 20% pay cut has been disastrous for many families. Others who fall through the cracks of the support are suffering worse.

Non-payment of household bills, already up sharply after lockdown, increased further between April and May, the Institute for Fiscal Studies found - suggesting some households are really struggling to make ends meet in the crisis.

Millions of workers without an adequate pension face this reality in retirement, going from a yearly salary of £20,000, £30,000, or £40,000, to relying solely on a State Pension of less than £9,000 - could you live on 55% (or less) of your current income?

As businesses reopen and workers return to fully-waged employment, it’s hoped households can get their finances back on track. But the longer you leave making proper provisions for your pension, the more irreversible the damage to your future living standards becomes.

Luckily, now is a great time to start or save more into a pension. The FTSE 100 index of Britain’s biggest companies has lost 19% in value since the start of the year; not usually good news, but many experts believe this is due to investors being scared by coronavirus, rather than problems with the actual companies.

As investors’ fear subsides the value of these companies will likely rise again. Adding to your pension now means in the years to come your investment will likely be much more valuable, and could give you a bigger pot to live on in later life.

The earlier you start saving into your pension, or increasing your contributions, the bigger bang you’ll likely get for your buck. Many let you begin contributing with a few pounds a month, whereas with PensionBee there are no minimum contribution amounts - meaning you can add as much or as little as you like, whenever you like.

Sadly for some financially stretched households pensions have been first on the chopping block. One in 20 workers in the UK have stopped saving into their pensions completely since March, while 6% reduced their pension saving.

Everyone is being forced into difficult decisions, made harder by an uncertain future as the Bank of England predicts the worst recession for 300 years. But dropping or cancelling pension contributions now is creating the worst kind of certainty; a poorer retirement.

An extremely powerful weapon against the anxiety caused by financial uncertainty is planning, from your weekly budget to the amount you want to live on once you’ve given up work. Experts at the Pensions and Lifetime Savings Association can help here, by creating rules of thumb pension savings tiers:

Minimum: A pension big enough to provide £10,200 a year for a single person, and £15,700 for a couple, to cover basic needs, and a treat once in a while.

Moderate: Income of £20,200 a year for singles and £29,100 for couples gets the basics, plus things like dining at nice restaurants several times a month.

Comfortable: An income of £33,000 a year for single people and £47,500 for couples allows for more regular treats like beauty treatments and long-haul holidays.

Sign up today, and be pension confident. With PensionBee you can easily combine your old pensions together into one simple online plan. You can see your current pot size, set up regular or one-off contributions, and use our pension calculator to check whether you’re on track to meet your retirement goals.

Risk warning: As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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