On the face of it, late retirement should be easier to plan for than early retirement. Clients will have more time to save and, in turn, those savings will have more time to benefit from investment growth. Advisers will also have more time to get the structures just right.
Later retirement could also open up more opportunities for the use of annuities, even if it is only part of a wider solution.
All other things being equal, annuity rates improve as you get older, and clients might not have to make so many 'blind' decisions, such as whether to include a survivor’s pension.
Likewise, unforeseen health issues might manifest in the period of deferral, meaning that an enhanced annuity becomes available. Diabetes, for example, can add up to 30 per cent to a typical annuity rate.
Those wanting the most flexibility in retirement, however, are still likely to be tempted by drawdown.
For those looking to retire in stages, given that drawdown permits varying drawings month by month, it can easily backfill lost earnings as the client moves from full-time to part-time work.
Moreover, the ability to drip-feed in tax-free cash can also help manage income tax liability during the transition phase, while earned income continues, via a process known as phased drawdown.
Having the option to suspend withdrawals will also be appealing to those looking to return to work, although you will need to alert clients to the money purchase annual allowance, which restricts total tax-relieved pension savings to just £4,000 each tax year, once pension income has been accessed flexibly.
Not all pensions offer drawdown, so clients will need support and advice if this is going to be the route for them.
If they hold DB pensions, very careful consideration will need to be given to the relative merits of the guaranteed income offered by the scheme in comparison with the flexibility available on transfer.
Remember that the Financial Conduct Authority expects you to start from the position that such transfers are unlikely to be in your clients’ best interests. Remember, too, that many DB schemes do not permit transfers out after the scheme’s normal retirement age, so forward planning is essential.
Even if the client already has their pension savings in plans that permit drawdown, the adviser will need to provide advice on appropriate investment strategies, and such discussions will be broader than matching asset allocation to attitude to risk.
With the arrival of auto-enrolment, company schemes now have to default members into a lifestyling strategy, whereby investment risk tapers as you approach retirement.
While automatic strategies like this can be beneficial in the right circumstances, there are two potential pitfalls to watch out for.
