Why retirement planning never stops – and employees need help
‘You’ve never had it so good’ declared Harold MacMillan on the eve of the swinging sixties.
He might have been addressing the UK’s pensioners. At that time, men usually retired completely at 65 and women at 60. The state pension kicked in and most workers received final salary pensions payable for life. However, the good news ended here. A 65-year-old man could expect to live, on average, to age 77. Women fared better living, on average, to 80.
Retirement today is more varied and complex and there is a wider, more diverse range of lifestyles and interests. And of course, people live much longer.
Together these make the development of a financial plan for retirement a personal experience and increased longevity means there is a need to regularly monitor plans.
Planning for change
There are several moving parts financial advisers must tackle. These include the transition to retirement, defining patterns of spending during - including the timing of changes, monitoring investment performance and withdrawal rates, reviewing extraneous factors, such as inflation, and taking account of changes in health or marital status.
The transition to retirement can take many forms. It may start with a cut in working hours or a change of career, perhaps starting a small business. For some people, the motive could be to shore up retirement savings. In which case, this is likely to lead to outright retirement eventually.
For others, the motivation may be to remain active, mentally or physically, for as long as possible or simply to enjoy work they love. In these cases, work may form a permanent feature of retirement (though ill health might force someone to reconsider).
During retirement, spending patterns change. Evidence suggests that expenses will usually decrease gradually, with a possible uptick towards the end of life if long term care is required.
The challenge is to define the timing and the rate of any change in spending. Someone could remain physically and mentally active for 20 or more years, which could mean that their spending changes little. In contrast, someone experiencing ill health shortly after retiring, or the death of a partner, could be forced to change their plans significantly.
Watching the money
Advisers need to regularly track the assumptions behind their financial plans. Have the funds performed better or worse than excepted? What are the implications on withdrawal rates? Have predictions about inflation played out as anticipated? What’s the prognosis for the economy?
The government’s latest initiative to deliver better outcomes at retirement is the ‘stronger nudge’. Before June this year, DC schemes were only required to signpost members to Pension Wise. Now, when someone applies to access their pension pot, the scheme must offer to book a Pension Wise appointment.
This is a significant and welcome step forward, but for many people a one-off appointment won’t be enough. The challenge for most people isn’t simply to make the right decisions at outset, it’s to regularly review those decisions throughout retirement.
Often, the answer will to supplement the Pension Wise service with advice.
Helping with face-to-face advice
The problem for many people is the affordability of face-to-face advice. Here’s where pension schemes can help. Pension schemes can use their resources to secure better deals for their members. They can leverage initiatives like the pensions advice allowance to help members tax efficiently fund advice from their pension pot. And they can use their experience of the market to identify affordable advice options.
There are lower cost digital solutions coming to market, including hybrid models that embrace the efficiencies of digitisation with a human touch at key points in the process. Pension schemes can access these solutions for the members’ benefit and provide affordable advice to more people.
Advice can play a crucial part in helping people prepare for retirement. It is one of the most effective tools we have to deliver better outcomes. We should do all we can to make sure as many people as possible benefit from it.
In partnership with HUB Financial Solutions
We are totally focussed on finding the right financial solutions for people approaching, or in, retirement. We don’t do anything else. Our purpose is to help people achieve a better later life.
