Retirement planning is the process where an individual sets retirement income goals and follow them with the necessary actions. According to the rule of thumb, you need to replenish at least 70% of your pre-retirement earnings if you want to live well after retirement.
However, it is not possible to do only by saving. You also need to invest your money in the right way. It means investing in a way that will bring in high-return assets. Hence, your savings will grow at a faster rate. Therefore, it is essential to do your investment and retirement planning properly. However, with the recent situation of Covid-19 breakout, things have become difficult.
Covid-19 has brought many changes in the lifestyle of people, as well as in the social-economic structure around the world. With the sudden restrictions to maintain social distance, many people have become jobless. Small and big companies are also facing several difficulties in resuming the workflow. In this situation, people are bound to suffer due to a lack of money. So, it is also leaving a strong impact on retirement planning. You need to focus on your retirement planning strategies more now and change them accordingly so you can secure your future.
Impact Of Redundancies And Unpaid Leave
Due to the lack of work, many companies may ask their staff to take unpaid leave. Companies need to consider the impact on retirement plans. That includes the fact if employees can pay voluntary calculations if benefit accrual and pension contributions should continue. Moreover, it should also be considered how the pensionable service and final pensionable pay calculations will be impacted by the whole situation, and if the company matching contributions will resume.
In a few cases, it may be important to amend plan rules to enable pension membership to continue for the employees that are taking unpaid leave. Similarly, employers that are making redundancies at this time, should consider its impact on saving plans and retirement. For instance, the market right now is extremely volatile, and it has a knock-on effect on investments, so, it is making it difficult for people to draw benefits from their current investment plans.
Cost management and cashflows
Companies are probably facing increased demands for additional pension contributions. In some countries, the turmoil in the market can result in increased funding deficits. Then there are some countries where pension plan boards are putting in requests for extra capital if they have concerns about the company’s strength.
If the companies want to see other options, it may depend on what is locally allowed, such as using contingent assets, renegotiating funding plans, suspending or reducing pension indexation, or filing for relief where contributions are mandated by law. Companies can also pay attention to pension costs that can be triggered by the redundancies of early retirement of the employees offered by the employer.
Retirement liability management
Covid-19 is leaving an impact on retirement liabilities as well. While liabilities calculated by long-dated government bond yields are going up, some companies are finding their liabilities going down. This kind of increase can only be temporary if the companies’ credit ratings are used to set the discount rates to change at the month’s ending. This results in a fall of high-quality corporate bond yields.
Recently, pension regulators have issued guidance in several countries, including the UK, Denmark, and the Netherlands. There are also new requirements on pension funds now on the navigation of the recent financial market turmoil. These pension funds are asked to review the plans for their business continuity. Among the pension funds, the employers also need to consider the impact on scheme funding. There is also an impact on conditional indexation and rights cuts in some countries like the Netherlands.
Retirement assets management
The huge fall in assets and bond yields and the increase in credit spreads have left a great impact on retirement assets. You may attend webinars of financial experts that explore the current market movements. The webinars also help to understand how pension scheme investment portfolios should react right now.
Crisis resilience and virtual meetings
Individuals should check the resilience of their retirement plans addressing certain areas like integrated risk management, cash management, and contingency plans. It is important to check both DB (Defined Benefit) and DC (Defined Contribution) retirement plans.
When an employee is close to retirement, he/she may find that the expected retirement income is significantly lower than what it would have been without the Covid-19 pandemic. It depends on the underlying combination of investments in DC portfolios, and how they use the funds to secure retirement income.
Given the current situation, some employees may realize that they cannot retire. In those cases, they will delay their retirement and continue working. Younger employees, on the contrary, are going to be concerned about huge drops in values in the retirement accounts. As a result, they can make rash investment decisions. Employees will have to consider what to communicate and how given the increase in home working. It is important for employees in DC plans, especially the ones close to retirement, that are concerned about the market falls.
The market turmoil is having a significant impact on the liability settlement projects and de-risking. Due to this, trustees and employers need to review execution strategies while considering the impact on the transactions regarding insurers.
Once the pandemic is passed, it will still take some time before the social-economic state goes back to how it was before Covid-19. After you overcome this period, you can go back to your previous retirement planning.
However, it is not the same for people close to retirement. So, investment planning must follow the current situation so you can save and increase your money as much as possible. As mentioned earlier it is also the responsibility of employers to make things easier for their employees. At the same time, the government must play its role right to provide people with financial security.