Almost half of currently furloughed workers have changed their retirement plans as the government’s furlough scheme comes to an end this month.
Research by Canada Life found that 28 per cent of workers on furlough plan to retire later than previously planned and a further 18 per cent will now retire earlier. Meanwhile, retirement plans for 36 per cent of those currently furloughed remain unchanged while 18 per cent are still undecided.
Canada Life technical director Andrew Tully says: “The government’s furlough scheme has been a lifeline for millions across the UK, however we cannot underestimate the number of people who will come out of this scheme in a challenging financial situation. This is demonstrated by the fact that many are changing their retirement plans, with a third of younger people planning to retire later. Interestingly almost one in four over 55s are actually thinking about bringing forward their retirement and leaving work earlier than planned. This could have serious implications for the economy with decades of experience potentially leaving the UK workforce just as we face a jobs and skills shortage.”
Personal finances have been shaped by the pandemic with 9 per cent of over 55s currently furloughed dipping into their pension for additional financial support. Another 7 per cent have used both tax-free cash and drawing down additional sums.
However, pension dipping could trigger the Money Purchase Annual Allowance which restricts the tax relief offered for defined contribution (DC) pension pots. Research has found that 43 per cent of over 55s are unaware of MPAA restrictions. Canada Life has also warned that pension dipping could potentially impact future claims of benefits such as council tax and universal credit.
Tully says: “Using your pension as a bank account might appear as the obvious way to prop up your finances following an economic shock, but you need to be aware of the hidden dangers lurking beneath the rush for cash. If you plan to continue working, and want to top up savings through a pension, then the Money Purchase Annual Allowance will bite in an arbitrary and restrictive way. It serves no real purpose apart from preventing savers rebuilding their pensions post furlough. I’m in favour of simply removing the restrictions, given most people are unaware of the limits, and who may well find themselves on the wrong side of the rules while trying to do the right thing.”
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