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30 Nov 21
The Impact COVID-19 has had on Personal Finances
The coronavirus pandemic has been a life-changing event that we won’t forget about any time soon.
As we start to emerge from the worst days of the pandemic and the restrictions have eased, we are getting adjusted to our ‘new normal’. It’s important for us to take a step back and understand just how personal finances have been affected by the virus, as well as what can be done to regain control of our savings and carefully plan ahead for a post-pandemic future.
Below, True Bearing explores the impact COVID-19 has had on personal finances.
How general spending habits have changed
Over the course of the pandemic, many people experienced periods without work, whether this be through furlough or complete loss of employment (e.g. redundancy).
The Guardian found that at least one-in-three households experienced a loss of income during the pandemic, with two-thirds of these being self-employed. With less income and no certain signs of when this might improve, the British public found themselves saving more and spending less. Where possible, people tried to shop for local produce and only buy the essentials. During lockdown periods, travel and time spent outdoors were limited.
With only vital retail businesses allowed to open to provide food, toiletries and medical supplies to the public, spending habits shifted to online, allowing people to think more about what they were buying, rather than just impulse-buying items they see in shops and on shelves.
As the pandemic continues to ease and retail and hospitality resume once more, employment is on the rise again, which could see UK consumers spending their savings during the latter half of 2021.
Attitudes towards retirement and pensions
Those approaching retirement age saw a mixed response to the pandemic. Some have been eager to start their retirement early and spend more time with their families due to the uncertainty of the times and where this may lead, whereas others have been able to put aside the money they would normally have spent on holidays and special occasions to aid towards their pension contributions.
Here at True Bearing, clients have reacted in different ways during the pandemic. What we have noticed is that those that have suffered a loss in the family have chosen to bring their retirement date forward or to reduce their working hours to part-time, out of fear of ‘running out of time’.
Clients who have experienced a loss have understood that, to them, making the most of their time with their families and friends whilst they are still able to is what’s most important.
When we ask what prompted the change, they will share their loss and how enjoying life has become much more important, as well as having the retirement they want and deserve now - whilst they have the time and are physically able.
For this reason, we think now more than ever there is a growing need for lifestyle financial planning and event planning at a much younger age. No one wants to work forever, and growing old is inevitable.
Coping with redundancy
The pandemic has triggered plenty of specific financial problems - redundancy being one of the most obvious.
As businesses began to fear closure due to lack of demand, funding issues and an inability to safely staff their company, they had to make the difficult decision to let go of some of their staff. Unfortunately, this led to a lot of people in their 50s and 60s being made redundant.
Though this is a tough decision to come to terms with for anyone involved, this is a particularly large issue for those who are older, as they are less likely to find another role during recruitment booms due to companies wanting to invest in a younger workforce who will be with them for longer.
This has caused some to decide to take their pensions early, which could cause damaging effects in the long run if they didn’t have much of a pension initially saved up. The Independent found that at the end of 2020 there was a surge of people taking money from their pensions early and diving into long-term savings to cover today’s costs, with 360,000 savers accessing their pension early during the last three months of the year.
In these cases, we try to advise our clients of the risks that could occur.
Nick Porter, Chartered Financial Planner at True Bearing, expands on this by saying: “I have only had one enquiry from someone who wanted to take money out of his pension in the middle of the worst of it all - but that was a one-off when compared to everyone else, and after a long discussion he realised our recommendation to hold on was more appropriate.”
How lockdown increased savings
Research carried out by the IFS has found that higher-income groups appear to have accumulated more savings than in previous years during the crisis, with falling spending from forced saving outweighing income falls.
A Parliamentary report on coronavirus’s impact on household savings suggests that household savings have increased since the pandemic began. The Bank of England estimates that households built up more than an extra £125 billion in savings from March 2020 to November 2020, and this increased to over £200 billion by June 2021.
Furthermore, the household savings ratio experienced a record high since 1987 with the ratio increasing from 8.9% in January-March 2020 to 25.9% in April-July 2020. While this decreased to 14.3% in July-September 2020 when the economy reopened, the ratio increased again in October-December 2020 and January-March 2021 during the next wave of lockdowns.