Guest comment: Covid-19's long-term impact

As we leave behind the immediate health concerns we faced in 2020, we must face up to the impact of long Covid on our pension system.

The effects are wide-ranging: concerns surrounding the indexation of the state pension; affordability of private pension provision through the workplace; and how investments have responded to volatility.

One reported impact has been the acceleration of DB scheme closures, brought about by the financial pressures placed upon employers.

This has two long-term effects on the outcomes for individuals.

Firstly, the inevitably lower contributions into a DC scheme will be very unlikely to provide the income levels of the DB scheme.

Joining a DC scheme (with a respectable contribution rate of 15 per cent) instead of a maintaining a DB scheme could result in a midcareer individual having an income in retirement around £9,000 a year lower.

Secondly, losing a DB scheme costs certainty. There is the possibility of DC investments outperforming DB accrual, but this comes at a cost of increased downside risk.

For the same mid-career someone retaining a DB scheme results in 80 per cent of outcomes spread over a £3,000 a year band.

A DC scheme (with contributions yielding similar average outcomes to the DB scheme) increases that spread to £16,000 a year, depending on investment performance.

This long Covid is going to leave sufferers with symptoms of reduced security and reduced incomes in retirement.

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