Older workers face delays to retirement

Pensions chief issues stark warning after stock market rout

HARDWORKING Britons who had too much of their pension invested in shares may have to postpone their retirement, the boss of savings giant Royal London has warned.

Barry O’Dwyer, the chief executive of Britain’s largest mutual insurer, said the catastrophic rout caused by the coronavirus could mean some people approaching retirement age no longer have enough money left to live off.

The stark warning came as global stock markets clawed back some recent losses.

The FTSE 100 index closed up 2.8pc or 143.82 points at 5294.9.

But it is still down 28.5pc in the past 17 days and the FTSE 250 fell another 3pc, taking its losses since February 24 to 36pc.

Most default pension plans start to shift investors’ money out of risky equities into safer assets such as bonds, as they approach retirement age.

This means that if a stock market crash occurs a few years before they retire, their money should still be preserved. Anyone who invests their own pension savings and received financial advice should have been given similar instructions, he said.

But there will still be many people who may have switched to a riskier plan, or who may have ploughed their pension savings into the stock market in the hope of a better return.

O’Dwyer told BBC Radio 4’s Today programme: ‘Most financial advisers would have moved their customers out of equities. If you’re in a workplace pension, your provider would have moved you out of equities into bonds as you came towards retirement.

‘So [having too much money in equities] shouldn’t have happened if you stuck with the default fund or have followed financial advice. But there will be some people, and it may be that those people have to re-plan their retirement, perhaps defer for another couple of years.’

The spread of Covid-19 has sparked fears that global growth could collapse. Lockdowns in countries such as China and Italy have throttled activity, and Italy is thought to be in a recession.

Keith Skeoch, chief executive of Standard Life Aberdeen, compared the scale of the recent market rout to that of Black Monday in 1987. And he warned the impact would be as bad as the Great Recession that followed the financial crisis of 2008.

He said: ‘I think we are going to see a very steep downdraft in economic activity in the second quarter. But I wouldn’t be surprised when we get through this to see a pretty strong recovery on the other side.’

The latest fund manager survey from Bank of America showed the biggest-ever monthly drop in global growth expectations since the data began in 1994.

Fund managers were almost as pessimistic as during the 2008 financial crisis.

Despite the extreme volatility, O’Dwyer warned younger investors against taking fright.

He said: ‘The important thing is to regard pensions as a long-term investment. Particularly for people who are younger, if you’re in your 40s and you can’t touch your pension anyway until you’re 55, then short-term volatility ought not to worry you too much.

‘The biggest mistake which retail investors make is to panic and to change their investing behaviour. That’s normally the wrong thing to do.’

Royal London announced its profit before tax climbed to £416m in 2019, from £396m the year before, despite sales of life insurance and pension policies falling from £11.3bn to £10.7bn.