A roadmap to retirement

Supported by
Royal London
twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Supported by
Royal London
A roadmap to retirement
(Photo: Pixabay/Pexels)

Independent financial advisers can help their clients cope with the current economic crisis by creating a personalised roadmap to financial freedom in retirement. 

This is the view of Romi Savova, chief executive officer at PensionBee, who warns that the cost of living crisis and rising inflation are making it difficult to create a long-term plan for later life.

But she adds that a good adviser can help clients by urging them to create clear retirement goals. 

Savova says: “Uncertainty can make long-term financial planning very difficult, but financial advisers may help their clients by setting clear goals and outlining the method to get there.

"By having an actionable plan, many savers may feel more confident and engaged in their savings, meaning they are more likely to commit to keeping up with regular pension contributions to boost their retirement fund.”

She adds that a good financial planner can reassure clients to avoid a knee-jerk reaction to move their pension savings into a very low-risk investment strategy, which would mean they miss out in the long run. 

She says: “The current economic environment has made setting the right investment strategy even more pertinent, regardless of whether markets are up or down.

"An adviser can be greatly beneficial in this area, helping review their client’s investment portfolio to ensure it is well diversified.

"Advisers can offer helpful recommendations to their clients such as avoiding the temptation of moving their pension to a very low-risk investment strategy while markets are low, as there is a good chance they will miss out on the eventual market recovery.

"They may also stress that low-risk plans should usually only be considered if a saver is withdrawing their entire pension imminently.”

Eduction is key

A similar notion is added by IFA Haresh Raghwani, who says the enormity of saving for retirement can be overwhelming. However, a good financial planner can focus clients to visualise what retirement may look like.

Raghwani, director and chartered financial planner at Berkshire-based Craufurd Hale, says: “Advisers can play an important part in helping clients plan their long-term savings by discussing the merits of pensions and other investments.

"Education plays a key and important part in helping clients understand the benefits. Products do not need to be discussed.

"Advisers can undertake cash flow modelling to help visualise to a client what their retirement may look like in the future. What do they need to do today to plan? Products do not need to be discussed at this stage. Advisers can provide reassurance and guidance.”

He adds that advisers can run educational seminars or workshops that provide informal generic information about the key merits of long-term planning. However, he insists it is important to educate younger people, who are traditionally left out as they are seen as unprofitable. 

He adds: “Typically, younger clients, are seen as unprofitable for many advisers, and I think this is the wrong approach to take. The education and guidance provided at a younger age will help clients in the long run.

"Whilst clients may tend to understand generic information, an adviser can help plug gaps in their knowledge about risk, tolerance, tax efficiency, capacity for loss or investment strategies.”

Planning for retirement can empower workers to take a critical look at their finances and plan for the future. 

This is why there are many retirement tools to help people plan for later life. These include online calculators and software programmes.

The MoneyHelper website helps workers understand pensions and includes a calculator for projecting how much income a person might receive, based on their circumstances. The public can also access Pension Wise, which is a government service that offers free, impartial pensions guidance about their defined contribution pension options.

The Pensions and Lifetime Savings Association is also playing its part in helping people plan for later life through its Retirement Living Standards, which helps the public picture what kind of lifestyle they could have in retirement.

The website allows users to see how much money they would need in retirement to live either a minimum, moderate or comfortable lifestyle. For many people, their private and state pensions and other savings could go a long way towards these costs. However, some people may need to add other costs depending on their circumstances, such as mortgage, rent, social care costs and any tax on pension income.

Alyshia Harrington-Clark, head of DC, master trusts and lifetime savings at the PLSA, says: “Up to 35mn savers now have access to the Retirement Living Standards through their pension scheme’s communications.

"From our surveys, we have found a total of 124 organisations are using the standards, including over 100 pension schemes and some of the largest and best-known industry brands.

“Among those who currently communicate the Retirement Living Standards to their scheme members, almost all say they are useful in helping members understand what to save for in retirement.

"Some employers have been able to increase contribution matching based on Retirement Living Standards analysis, whereas others have improved engagement by upwards of 30 percentage points, with some schemes experiencing increased contribution rates of over 130 per cent as a result.”

A bespoke retirement

The standard has been praised by Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, who says it gives savers a concrete idea of what is needed in terms of annual income.

However, she adds there is no such thing as a one-size-fits-all retirement. "Different people will have different ideas of what kind of lifestyle they want," she says.

"Having these figures in mind can bring people comfort that they have secured a particular level of retirement lifestyle and give them an idea of what they need to do to improve further”.

This was echoed by Craig Muir, senior intermediary development and technical manager at Royal London, who says: “The power of these Retirement Living Standards lies in giving people a real sense of what they’ll be doing and how they could be spending their money when they retire.

"They explain to clients about the building blocks of their lives – their car, their home comforts, how much they can give their family, the kind of holidays they’ll have – and it helps them visualise what they want in their retirement. This should help with getting them to engage with their pension.”

Although lots of free guidance exists to help people understand pensions, Raghwani warns it is important to interpret the results correctly.

He says: “A lot of free tools exist online with providers such as Hargreaves Lansdown, AJ Bell and many others, that allow clients to input their contributions, time horizon and potential growth rate to help them work out their pension pot and what that could provide as an income.

"The issue with clients doing this themselves is that they could have a false sense of security as they may input unrealistic growth rates, which may not align with their risk preference. 

"These tools simply project returns on a straight line and a lot do not factor in inflation. This is not a true reflection of how investments work.

“The best tool in my view is undertaking a cash flow modelling exercise. This can be personalised, and the adviser is on hand to provide guidance and advice.” 

Aamina Zafar is a freelance journalist