Cost of Living May Mean More Early Pension Access

Published / Last Updated on 19/05/2022

At a recent later life financial planning summit, the Money, and Pensions Services (MAPS) has suggested it is “mindful” that the huge increases in the cost of living will force some people to access their pension pots early.

Whilst this may solve an immediate problem if you are short of cash, it will create a bigger problem later when you retire.  Dipping into pensions early should only be done if you already have enough retirement provision or have considered ways to replace the pension fund that you access early e.g., saving more after you have cleared down unexpected debt, downsizing property, inheriting or indeed that pay rise when your state pension kicks in.

Remember, the Governor of the Bank England, Andrew Bailey said earlier this week when speaking at a Treasury Select Committee (TSC) meeting that he (or the Bank) felt “a bit helpless” in controlling inflation given that 80% of the factors driving inflation are outside the control of the Bank of England or the British government.

Inflation is here to stay for a few years­.  In fact, governments need inflation to devalue their covid-19 debts.

Our concerns though are that if inflation sticks around, then you must look at what the cause was of you needing to access pensions early.

  • Was it a one of event that put you in this position e.g., an unexpected family crisis, an unexpected ‘large ticket’ item or repair or even redundancy? 
  • If it was a not a ‘one off event’ but it is literally your budget and spending habits then, the problem is not going away, in fact with inflation it may get worse.

Review Your Spending and Set a Budget

  • Bank statements.  Meticulously go through your bank and credit care statements.  Note all your expenses and consider where your money is going and where you can make cutbacks.
  • Subscriptions – TV, magazines, music, mobile phones, clubs, gyms and sadly charities.  Do you really need any of these, could you save with alternative solutions?.   Riding your bike is free, running free, sea swimming is free. 
  • Cut utility use – anything that is measured (i.e., metered) can be monitored and controlled.  Take a shower, do not have a bath.  Only ‘flush for number 2’ (sorry!),  Turn your thermostats down just a degree or two as well as turning the boiler output temperature down.  Where a jumper.  Turn lights off.  Turn all electrical goods off that are on standby.  Lag your pipes, insulate.
  • Eat at home, takeaways are treats and should not be your staple diet.    Make food, do not buy ready meals.  It is so much cheaper to batch cook casseroles, curries, chillies, bolognese, lasagne and more.  The owners of this site do this every weekend.  20 portions of lasagne are a main meal for two people for 10 days.  In addition, when the oven is on, it is never empty.  If you are using the oven to cook a roast for example, why not pack the oven out with trays of lasagne or a pie to save energy.  Stop buying coffee and lunch from outlets.  Make packed lunches.  Batch make 5 sandwiches at the weekend for each working day to come that week.  If you have even just a small patch of land, garden, or patio, grow vegetables and herbs.
  • Alcohol and smoking.  Some people do smoke, and many people do like a drink.  Stop smoking or cut back.  Be disciplined and limit yourself to X cigarettes per day.  Supermarket alcohol is cheaper that the pub or wine bar.  You cannot live like a ‘hermit, we all need to have fun but plan it.   
  • Cash is king!   Stop tap tapping your plastic on card readers.  When you go shopping or when you go for a night out, set a budget.  Take cash rather than cards.
  • Financials.  Shop around for your insurances and switch credit cards to 0% deals.   Do the same with mobile phone contracts and broadband.
  • Travel.  Walk more, get your bicycle out.  Stop doing short journeys in the car or on the bus.
  • Shopping.  Plan your weekly or monthly shop and make a shopping list.  Stick to it.  Do not impulse buy.  Shop at discount retailers.  Save all coupons you are given, cut out coupons
  • Make and mend.  Whether that is household items, your clothes, or your car.  The owner of this firm sews fashionable patches on his jeans with holes.  Sew on buttons.  Make your hobby car maintenance and/household maintenance.
  • Cards and Debts.  Freeze, cut up or indeed set spending limits on your cards.  Make a concerted effort to pay off debts and then cancel that debt facility.
  • Time Out.  If you are about to order something online then think before you spend.  Step back and wait 24 hours.  If you still need to make that purchase, then so be it.  This will cut impulse buying out.
  • Zero Days.  Have at least one and possibly two ‘no spend days’ each week.

Inflation and increased costs of living are going to be around for some time.  Nobody plans to fail but many fail to plan.  If you need to access your pension fund to get out of trouble, then you will do but do not ignore the causes of your financial difficulty, you need to plan to not have to dip into your pension fund again until you are ready to retire or semi-retire.

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