Retirement experts are warning savers not to cash in their pensions during the coronavirus crisis.
New figures show that the value of a defined benefit pension is more than the price of an average home for the first time ever – and the gap is likely to widen.
Pension firm Hyman Robertson warns that the temptation to withdraw pension cash should be resisted until the economy is back on course.
The average price of a UK home is £230,332, according to the latest data from the Office for National Statistics.
The firm says the average value of a defined benefit (DB) pension is £233,000.
Gap likely to grow
Hyman Robertson partner Callum Cooper said: “So much focus is put on property as an individual’s main asset so it may be a big surprise for those fortunate enough to have a DB pension that it is worth more. As this value was pre-lockdown, the discrepancy between the two values is likely to widen over the coming months too.
“Whilst there is much uncertainty, the weight of evidence points towards further falls in residential property values. Equities tend to lead the economic cycle while property often lags this so further declines in property prices could be expected. For pensions on the other hand, there is evidence that points to long term government bond yield declines following pandemics.
“That increases the value of lifetime incomes. That suggests that the higher value will not only be sustained but will rise, with some uncertainty. So, we could well see the difference in pension and property values widening with upper jaw of pensions pushing further upwards and lower jaw of property slipping.”
Strapped for cash
An estimated 11 million UK workers have a DB pension through their workplace, and many are facing strains on their finances during the coronavirus lockdown.
“Some people will inevitably become increasingly strapped for cash in this COVID-19 world of social and employment disruption,” said Cooper.
“The longer the economic lockdown persists, the more likely it is that people will seek exceptional sources of cash to get by. Given the value of pensions and how much easier they are to access in a locked down world, than property, people could look to their them for cash. So, it is so important that this asset is fully understood and not hastily cashed-in.
“Engagement, education and exploring all the options is key and stakeholders should be ensuring they provide information and support to help members make the best choices for them. We have found that 1 in 6 schemes have suspended DB transfers for three months which helps avoid rash decisions, but the need for cash is likely to continue for many more months.”
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