Beware of easy money

Many people are financially better off through COVID-19 because there is no opportunity to spend money in restaurants, cinemas, art galleries and the other places we usually enjoy.

But you might be one of those who is worse off and struggling, or you want to help relatives who have lost their jobs, and this could tip you towards looking at new ways of raising money.

Two schemes enable the over-55s to release substantial sums. One is taking money out of your pension fund and the other is equity release, also called a lifetime mortgage, which lets you cash in some of the value built up in your home.

Both should be treated with extreme caution because neither is a risk-free path to riches and either could turn out to be an expensive mistake. Taking money out of your pension or your home can also affect your entitlement to welfare benefits.

Unless you have a pension where your employer takes the investment risk (a defined benefit pension), the value of your pension pot will have shrunk a lot this year because share prices have tumbled. Taking out a lump sum now will further reduce the amount of money you have left for your retirement income and could leave you with less than you need.

It also reduces the amount you can put back into your pension in future without