"Having seen entire sectors halted almost overnight, the nation is in a state of flux. Pensions may represent some much-needed protection to savers in this new normal."
Most rainy-day funds are intended to cover small unexpected expenses, like broken boilers and car repairs – not devastating pandemics wreaking havoc on life and the economy.
The long-term impact of Covid-19 will be to rob many savers of their set-aside funds as lay-offs and administrations leave their mark on fragile household finances.
And what of the people with no savings to start with who are dangerously exposed to whatever the economic storm can throw at them in the months ahead? A deepening of already unsustainable debt levels will be an inevitable consequence.
The need for good quality financial advice has never been greater.
The virus has changed the way we think about many things, including working practices and the freedoms we once took for granted.
While it may seem a lesser priority right now, I sincerely hope attitudes towards saving for the future are also affected by this great global reality check.
I have tracked the UK’s quarterly saving activity and attitudes of more than 40,000 people since 2013. The data shows that the average amount people believe they need for a comfortable retirement is around £23,000 per year.
Yet many people have been saving well below the level needed to achieve this, even before the pandemic arose. Personal debts, meanwhile, have been stacking up.
In the first three months of 2019, the average amount of personal debt taken on by individuals was £1,016. Fast forward 12 months, and it has rocketed to £6,325 with the largest increases seen among those aged over 45.
Rising debt continues to dwarf savings, with on average only £435 set aside over the first three months of the year, heading into the coronavirus crisis.
This savings gap, between what’s needed to fund emergency costs and later years versus the actual amount being set aside each month, is in danger of being blown wide open by Covid-19.
The virus is the ultimate wake-up call in terms of personal finances. Anyone who thought they had their financial future mapped out with precision has had to think again. It is a reminder that nothing is certain, economically or otherwise.
Getting by day-to-day is, of course, many people’s top priority right now. But when the dust finally settles, long term savings and the reassuring stability they bring will be in high demand among the newly awakened British public. New client-adviser relationships will be established and existing ones deepened.
But there are monumental challenges ahead.
And the significant progress made in addressing the causes of the retirement fund shortfall could also be lost without careful focus.
Great strides have been made in recent years to help tackle the contributing factors to our savings shortfall.
For example, at one time, getting into debt online – via a credit or store card or payday loan - was infinitely easier than setting money aside through the web.
Improvements in technology and product range have combined to increase saving’s accessibility. It’s easier today to invest in a diversified portfolio made up of thousands of assets spread across the world.
Financial education, which instils the importance of saving for the future, has also been ramped up although much more still needs to be done. Both adults and schoolchildren are benefitting from financial literacy lessons and courses than before.
Auto-enrolment into workplace pension schemes has also made a huge difference, with a minimum eight per cent contribution now going into pension schemes.
There is no reason why these trends can’t continue. But with recession looming, what can each individual do?
First is to get a grip on what’s coming in and going out. A consequence of life on lockdown is money saved on travel costs and going out. This is a useful moment to analyse how much we spend each month and where we can cut back. There are lots of apps that use open banking to break down outgoings and show where the monthly pay cheque gets eaten up.
Secondly, and with those newly-found savings, now is the time to look seriously at investing. Rock bottom bank interest rates are here to stay and markets are cheaper now compared to a few months ago. It’s worth remembering that those with large nest eggs today, began by saving little amounts many years ago. Investing a few pounds little and often is a good habit to get into and now is a great time to start. True Potential’s own impulseSave app makes it possible to invest from as little as £1 on your phone.
Thirdly, use this lockdown period to brush up on financial knowledge. True Potential and the Open University created the Public Understanding of Finance centre with a range of free, online money courses. They’re easy to use, bite-sized and you can learn at your pace. Invest in your own understanding, as over 500,000 other people have done by taking the courses.
Of course, good financial advice provides a steadying hand along the journey to a more secure financial future. It has taken years of that collaborative effort to push retirement fund saving up the agenda.
Encouraging young people in particular to focus on retirement, an event decades away, has always been a tough sell. Current and impending conditions will only heighten this challenge.
At the same time, however, the collective shock to the system caused by Covid-19 could help increase workers’ appetite for stability. Having seen entire sectors halted almost overnight, the nation is in a state of flux. Pensions may represent some much-needed protection to savers in this new normal.
With so much ground covered in addressing the nation’s retirement fund shortcomings so far, the coronavirus must not be allowed to undo years of good work.
It won’t be easy, but if the government, the financial services community and employers all play their part, I believe there is enough momentum to continue narrowing the UK savings gap.