Planning for later life: what do clients need to know?

Grand plans in retirement are not unusual, of course. Many people like to think they will be able to use the time to go on holidays or travel more, spend money on children and grandchildren, or simply find time for projects and hobbies they were not able to do while working.

Then there is the issue of leaving a legacy, all while having enough to meet the costs of everyday living, including food, expenses and bills.

Getting older often coincides with deteriorating health as well, which can add another layer of costs.

Oliver Smyth, financial adviser at Walker Crips Wealth Management, points out the state pension alone cannot be relied on to fund later life.

“The current single tier state pension is £159.55 a week, or £8,296.60 a year,” he states. “For most people this will be an enormous drop in income that would be very worrisome if no planning had been put into action previously.”

Effective advice can provide assurance and peace of mind as to when you might be able to do it and what kind of lifestyle you will be able to maintain once retired.Oliver Smyth

“The most important question a client needs to ask themselves is ‘what does later life look like?’” he adds.

A financial adviser can help map out a plan for how to meet those expectations.

Mr Smyth explains: “Private savings vehicles, effective tax planning and settling on a realistic vision of the future are crucial. This is where financial advice comes to the fore.”

It can also help to remove any stress and means that many people can go onto enjoy their retirement, rather than be consumed with worry about how to fund it.

“Effective advice can provide assurance and peace of mind as to when you might be able to do it and what kind of lifestyle you will be able to maintain once retired,” he notes.

Living longer

While it is often the case that many people suffer ill health in retirement, the fact is life expectancy is increasing.

A baby boy born in 2017 can expect to live to 79.2 years of age, while a girl born last year will live to 82.9 years, if mortality rates remain the same as they were in the UK in 2014-2016, according to the Office for National Statistics.

Jamie Clark, business development manager for Royal London’s intermediary pension business, comments: “People need to understand that they will invariably live longer than they expect and so will need a bigger pension pot that lasts longer.

“As a rough rule of thumb, people should be saving half their age as a percentage of earnings into pensions – for example, a 25-year-old should be saving 12.5 per cent.”

The need to plan for retirement is all the more urgent for millennials today as some in this generation believe the state pension may no longer exist by the time they come to retire, according to recent research by Royal London.

How can advisers guide their clients to achieve a comfortable quality of life in retirement? 

Given that no-one knows quite what the future holds, how can a financial adviser take an accurate view of their clients’ future requirements?

The helicopter view

“We have a responsibility to give clients the helicopter view, showing them a broad landscape of their life and needs,” explains 1825’s national advice manager, Colin Dyer.

“A danger we all face is prioritising short-term spending over long-term income needs.”

He acknowledges: “While many of our clients are benefitting from the new freedoms in their pension planning, it’s essential to agree a solid plan for provision of income throughout all of their life, including a safe plan for potential costs later in life.”

When the pension freedoms came in three years ago, it heralded a new era of choice for those reaching their retirement years.

No longer was it a requirement to buy an annuity and be done with it.

Other lifestyle changes also mean the way people retire today is very different from a couple of decades ago.

When we consider life plans for clients, we build in the assumption that during their later life they are likely to require some element of care.Jade Connolly

Ian Price, divisional director at St James’s Place, confirms retirement in its traditional sense has changed.

“Gone are the days when an individual reached a given age, retired and never worked again. Instead, the decision as to when to give up work rests with the individual, and most will have a ‘glide path’ to retirement,” he observes. 

Over a period of 10 years, he notes, people may move from full-time employment to full-time retirement and during that time will reduce their working hours or do a different job entirely.

This means, planning for retirement has taken on a new level of complexity and importance, he confirms.

“Retirement used to be about having an income in retirement that was set, and which may have had some level of indexation built in,” Mr Price says.

“[Now], there are different stages of retirement and income will need to be flexible to adapt to these stages.”

St James’s Place refers to these stages as:

• The ‘Go Go Years’ – between the ages of 55 and 75
• The ‘Go Slow Years’ – between 75 and 85 years of age
• The ‘No Go Years’ – those over the age of 85

“In each of these stages, the level of income will need to be different,” he points out. “In the ‘No Go Years’, paying for care could become an issue and this means the individual will need more income.”

Social care funding is the cause of much concern among those in the advice and pensions industry, many of whom believe the government is not doing enough to address this growing issue.

In the Autumn Budget 2017 there was very little in the way of the speech itself or any accompanying documents about social care or later life care.

Steven Cameron, pensions director at Aegon, remarked at the time of the Budget, in November last year, that the government cannot keep avoiding “such an emotive and far reaching issue”.

“Financial advisers tell us they see this as a key growth area for clients seeking advice over the coming years, but to plan ahead with certainty, we need a sustainable deal between individuals and the state, setting out clearly what the government will pay and what individuals will be personally responsible for,” he said.

The care gap

As Jade Connolly, head of advice at Ascot Lloyd, notes there are currently no products available to cover the cost of care.

Instead, this must be factored into the client’s later life planning.

“This often comes as a surprise to clients who expect the opposite,” she admits. “There are options to commit capital when care is required in exchange for a lifetime income but these are only relevant when an individual requires care, which is often too late to start to consider planning.”

Ms Connolly advises taking it into consideration early on: “When we consider life plans for clients, we build in the assumption that during their later life they are likely to require some element of care.”

It is not just about the cost of care that clients need to be concerned with in later life, she adds, but also making provisions for their estate after death (see boxout for further information).

“We often advise clients with surplus wealth to start gifting away sooner rather than later,” Ms Connolly explains. “We also work with solicitors and accountants to ensure wills and power of attorneys are in place to complement the financial plans we build with clients.”

“Sorting out your will and power of attorney can also save your loved ones time and money in the future,” suggests Frazer Wilson, senior consultant at Thomas Miller Investment.

“Talking to an adviser who has been accredited by The Society of Later Life Advisers (SOLLA) would be a good place to start.”

Mr Price concludes: "The key to a comfortable retirement is to plan ahead, take advice at the right times and continually review your needs as you get older and circumstances change."

eleanor.duncan@ft.com