My grandfather was born in 1926. He worked as an engineering draughtsman at Centrax Gas Turbines for most of his life and did not have much of a choice when it came to saving for his retirement. He received an occupational pension and retired earlier than the national retirement age of the time.
I was born in 1991. Since leaving university I have worked for three publishing companies and spent a year as a freelance journalist. At the age of 30 I have already accumulated four workplace and personal pension pots. I also have a pension my parents paid into during my childhood, plus a Lifetime Isa.
How times have changed
True, there are still people who stay in the same job for their entire working life and retire with one pension pot. But situations like mine are becoming increasingly common as more people job-hop, take a sabbatical or engage in a portfolio career.
We need to be with our clients in the twists and turns of changing employment patterns and family worries
And, just as working patterns have shifted, so has the shape of retirement.
When automatic enrolment was introduced in 2012, it altered the way many people saved. The pension freedoms, brought in three years later, gave consumers more choice about when they accessed their pension savings. There has also been a shift away from defined benefit schemes towards saving into defined contribution (DC) schemes. This transfers the risk and much of the responsibility for retirement outcomes onto the consumer.
Add to this the multitude of challenges in the world today — the Covid-19 pandemic, ominous inflation rises, the uncertainties caused by Brexit, the threat of climate change — all of which are wreaking havoc with the UK and global economies. It is no wonder so many people are unclear on the path they should take when saving.
So, what can advisers do to help smooth their clients’ road to retirement?
“We need to be with our clients in the twists and turns of changing employment patterns and family worries,” says Succession Wealth wealth planner Robert MacDonald. “We also need to be there when they’ve seen something online that has spooked them about markets.
“Our job is to help clients not to make daft short-term decisions that may affect their retirement journey, as it makes us look daft that we allowed it.”
Find out what clients want
An important first step is to establish what the client wants. As a rough guide, research by consumer group Which? in June suggested couples needed a pot of around £155,000, on top of their state pension. For single-person households, meanwhile, a comfortable retirement would require a pot of around £192,290, as well as the state pension.
However, to work out what individual clients will need, advisers must do cashflow modelling, even for those in their 20s and 30s, according to Helm Godfrey chairman Danby Bloch.
“This will give them an idea of how far off track they are,” he says. “The longer they’re aware of the fact there’s a gap, the more likely they are to start taking it more seriously earlier.”
Engage clients early
Recent research by the International Longevity Centre made the worrying assertion that one in five Gen X-ers was “sleep-walking towards financial hardship in retirement”. It also found 46% had DC pensions, but most were not contributing enough to these.
One of the most important things an adviser can do is to engage their clients early in the process of saving for retirement.
“Getting people to engage early and save gradually is such a win for an adviser,” says LCP partner and former pensions minister Steve Webb. He likens saving later in life to the Wallace & Gromit scene in which Gromit must lay down pieces of train track just ahead of the toy train he is riding so he can catch the evil penguin.
“We’re panicking, furiously trying to make up for all that missed time.”
The adviser, says Webb, can make this much more comfortable by getting their client to think ahead.
“A lot of pension stories are finger wagging: feel bad, stop having that nice coffee. But if you do all this stuff gradually it is much less painful,” he says.
Not only will saving earlier allow a client to put away more but it will enable their pot to build up more compound interest.
“One of the most powerful things people need to understand is the benefit of compound returns,” says Bloch. “The earlier someone starts to put money in, the better off they’ll (probably) be at the end of the day.”
It may seem an obvious point but, he says, it is something a lot of clients simply have not thought of.
Navigate a multifaceted market
Retirement has changed. Patrick Ryan, another wealth planner at Succession Wealth, says he now refers to it as, “the day my clients achieve financial independence — meaning they choose to work rather than have to”. This is empowering to the individual.
However, the resultant variety of financial strategies available to people can be bewildering, as can the sheer number of products. An adviser’s greatest service is to “add simplicity through our advice, making complex concepts accessible”, says Ryan.
Once a client reaches retirement, an adviser should ensure essential income needs are backed with guarantees and combine that with flexible elements for access to capital and changing income needs. It is also vital they never pay too much tax.
“The downside of an annuity is that it isn’t very flexible. A certain amount of money will pop into the client’s account every month, no matter what happens — like a salary,” says Canada Life technical director Andrew Tully. “The beauty of a drawdown wrapper is that people can choose how much they take each month.”
It is the same for legacy and death benefits. An adviser should ensure the choices their clients make allow them to be as flexible and tax efficient as possible. Advisers must also be prepared to adapt the solutions they recommend to fit the client’s changing requirements.
Getting people to engage early and save gradually is such a win
“Retirement for most people is going to be 25 or 30 years,” says Tully. “The likelihood is that things are going to change for the client throughout that period — whether that’s their individual circumstances, their state of health or a partner dying. Some of those things might be unexpected.
“The key is having the flexibility to be able to adapt to meet those changing circumstances. It’s fine to go in with a plan; plans are good. But there must be an overriding acknowledgement that the situation will probably change.”
It is important, too, that advisers take a holistic approach to retirement savings. Equity release can be a tax-efficient way of providing capital, income and legacy. Trusts and investment bonds can also be used alongside pensions to bolster income and allow for the most tax-efficient strategy.
The product choice and recommendations advisers give are vitally important to the advisers’ own business, not just their clients. In this era of uncertainty and change, it is vital advisers find solutions that can answer all their clients’ ‘What if?’ questions — now and in the future.
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July 01, 2021 at 03:00PM
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Special report - How can advisers smooth the road to retirement for their clients? - Money Marketing
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