While some of us will over the next few weeks and months be returning to something like normal others will either be facing further furlough or working from home for the foreseeable future.
Whichever category you fall into, there’s no escaping that the way we work, rest and play are all now subject to change. Our finances too. While we’re all looking out for our physical wellness, we shouldn’t forget our financial wellness either.
Getting back to ‘normal’?
Those returning to work will likely be coming off of furlough and seeing their income return to ‘normal’ levels. That will no doubt be a welcome relief. While on furlough, contributions to workplace pensions continued, although at a reduced level. Those who regularly contributed more than the minimum, possibly saw a reduction in not only the amount paid in, but also their account value as the markets dipped.
Is now the time to start a recovery plan? Assessing your financial wellness is made easy by using our personal money check-up tool. Understanding what affect Covid-19 has had on your finances is important when rebuilding your retirement savings. It can help you find out if you are in a position to resume or even increase your pension contributions.
Working from home?
If you are still working from home, there are ways to generate some extra money that could boost your retirement savings. One way to is the facility to claim tax relief on household bills.
You might not be aware that you can claim expenses in this way - up to £6 per week can be claimed to cover household bills while working from home. You must be an employee who is home working as a direct consequence of the COVID-19 restrictions - as many firms have closed their workplaces. If you are working from home on a voluntary basis, then unfortunately you cannot make a claim.
There are restrictions on what you can claim. Costs that would be the same whether or not you are working at home, like your mortgage, council tax and water rates cannot be claimed. The expenses that can be claimed are the additional costs that you incur from home working - electricity, IT equipment and heating for example.
Home working also means saving on the cost of travel, eating out and gym memberships. Those savings, if redirected into your pension, could go a long way to rebuilding your account. Putting more into your pension now means you are buying ‘low’ and giving yourself greater growth potential when markets improve.
Other silver linings
Wherever you’re working, there are more savings that could be diverted into your pension.
You may not want to be reminded of this, but it’s possible that you won’t be travelling abroad this summer. With holiday plans shelved, there’s a sizeable chunk of money that could find its way into your pension savings. Not as enticing as two weeks in the Mediterranean, but almost definitely more practical with far greater long-term benefits. You’re likely to be spending less on socialising too with restaurants, pubs and cinemas remaining closed. Could those savings could be put to work in your ISA or pension?
Even if it’s not a permanent increase to your contributions, any extra money that could be invested in your retirement savings could prove to be a savvy move in time.
Remember, when you increase your contributions, your employer may also increase theirs too. What may be a small increase now has the potential to be something significant later - see how a small change could make a big difference to your retirement savings by taking our 1% challenge.
Good news too for those that contribute using salary sacrifice and normally have to wait until a ‘life event’ to adjust contributions. HMRC have made it possible to change salary sacrifice arrangements now as they have classified Covid-19 as a life event.
Making additional voluntary contributions (AVCs) is another way to pay into your pension. With AVCs, you have the flexibility to make regular or one-off contributions. AVCs get tax-relief added to them as well, so long as you haven’t exceeded the annual allowance (£40,000).
It may seem like a time of uncertainty on many fronts, but now is a great time to improve your retirement planning. Although the stock market is experiencing some turbulent times, this volatility is a natural part of long-term investing and shouldn’t deter people.
If you can, recognise where savings are made and turn them into pension contributions. Increasing the amount put into your retirement savings and making volatility work for you can be a real shot in the arm for your overall financial wellness.
Read more on Covid-19 and your pension.
Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in a pension and tax treatment depends on personal circumstances and all tax rules may change. You can't normally access money in a pension until 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.