In Focus: Retirement Income  

How Covid shaped my clients' attitude to pensions

Conversely, someone with £100,000 who earned £10,000 a year may find that 5 per cent growth figure looks less impressive, yet they could manage better on that than the higher earner who may have been less prudent with their spending.

This is where cash flow planning is beneficial. It shows people how much is enough for their retirement.

FTA: How are clients expected to generate income without incurring big charges?

TM: When it comes to equities, passive and exchange-traded funds often don’t cater well for income investors. However, for me, the benefits of a fund manager are very much integral to this style.

And I don’t have an issue with clients paying more for a service if it delivers the desired outcome. If a client has a strong conviction for low-cost funds, I will recommend a passive portfolio. If not, I tend to recommend a blend of active and passive funds.

And for those who are cost conscious, I have split their allocation to certain sectors between a passive fund and an active fund with a strong track record of long-term outperformance. They have seen first-hand there can be a clear benefit of paying additional charges to generate alpha.

FTA: Is there a disconnect about what clients should actually expect to live on in retirement, and what they think they are getting?

TM: In my experience, there can be a massive disconnect between what clients have and what they want. What they need may be different again.

Some clients tend to forecast very well themselves. This tends to be those from an analytical background such as someone in finance, an analyst, or engineer. The majority, no matter how smart and successful they are, often aren’t fully aware of what they have or need for retirement.

This is where cash flow planning projections can help put a number to it. It certainly comes across as more scientific than using a rule of thumb, such as trying to replace 50 per cent of your salary.

That very likely won’t be enough even for a 45 per cent taxpayer.

Simoney Kyriakou is senior editor of FTAdviser