A report by Nucleus has found that confidence in retirement is expected to drop in coming years, with the firm encouraging advisers to “embrace planning”.
This morning (November 7) Nucleus Financial Planning published its first Retirement Confidence Index, which it expects to release on an annual basis.
The firm surveyed more than 2,200 people over the age of 50, half of which had already accessed their pensions. In both groups, half had taken advice while the other half had not.
The Lang Cat, a research agency, also spoke to 1,300 advice professionals around some of the key findings of the report.
Overall, the inaugural confidence index score was 6.9 out of 10, with 10 being totally confident.
However, the report noted this score came with a negative outlook.
Andrew Tully, Nucleus's technical services director, said the figure was higher than expected but that it is likely to come down in future years.
He said: “The cost of living is impacting people’s confidence, we expect that to be a longer lasting impact. It might take until about 2027 for people to get the level of disposable income of a 2019 level. There is also going to be a whole cluster of people remortgaging.
“We expect confidence to come down. The difference between people taking advice or not and the confidence they felt wasn’t as big as we expected it to be.
“People who had taken advice absolutely thought it was good, it made them more confident.”
Holistic planning
The report found that ‘holistic planning’, which is not always part of the financial advice process, is vital to retirement confidence.
Tully added: “What came through most clearly was planning, not advice in itself, is so important.
“What we are saying is, there is actually a planning gap, it is more holistic than advice.”
Just over half of those asked had a detailed plan for retirement and only 20 per cent had a plan in writing.
Those without a plan had the lowest confidence score of 4.6.
The research found a “clear gender gap” with men generally more confident in their prospects for a comfortable retirement.
Men had an average confidence score of 7.2 compared to 6.5 for women.
Confidence among those who had taken financial advice resulted in a score of 7, compared with 6.8 from those who hadn’t - the report notes this is a “less marked difference than anticipated”.
Advisers told the study that retirement confidence is unlikely to improve anytime soon and people are likely to be worse off than their parents’ generation in retirement.
Giving his experience, Tom Ham, director of Calton Wealth Management, said: “The culmination of over egging returns and underestimating life expectancy can be catastrophic”.
Tom McPhail, public affairs director at the Lang Cat, said the industry can help improve pension confidence by working on retirement plans with clients.
He said: “Generation X’s pensions will be smaller than their parents and it is going to become more and more challenging.
“Engagement is part of the solution but I think that question of making a plan is key.
“It is a really interesting challenge for financial advisers and the industry as a whole about the role they can play.
“We need to think about how we can help people make plans and what are the processes people should be going through to make a plan?”
The report also includes recommendations for regulators and the government, including making the pensions dashboard happen and the need for more education about retirement planning.
Mike Regan, Nucleus’ chief financial officer, added: “If we have a better understanding of what the barriers are we will be better equipped to support customers on their next steps.
“We believe this annual index will help us understand some of that consumer sentiment.”
tara.o'connor@ft.com
