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Guide to financial certainty in retirementHow has the financial landscape become more uncertain?
It is fair to say that in the years following Covid-19, when one might have thought there would be a return to calm, it has been the opposite.
There has been so much market volatility, particularly over the past two years, which continues to be a concern for savers and investors.
As a result, more clients are aware of increased inflation and interest rates and the impact this is having on their overall financial situation.
As Lucie Spencer, director in financial planning at Evelyn Partners, explains further, the value of pension pots has recently been quite volatile with the ongoing turbulence in the markets. This has been occurring since the Covid-19 pandemic with the drop in value of the equity markets, then the subsequent rise in value.
Then with the war in Ukraine this has had a further impact on oil prices, which has impacted inflation around the world resulting in a fall in fund values.
Economic uncertainty has had a significant impact on consumer behaviour. And the changes we’re seeing not only apply to now, but also to what people want in retirement.Claire Altman, Standard LifeWithin the UK, Spencer notes the rise in interest rates, which has led to a reduction in gilt yields, resulting in a reduction in the value of these holdings and the subsequent value of pension funds.
And with the increase in the annual allowance and the tapered annual allowance this has led to an increase in planning opportunities for the higher earners.
She adds: “With the removal of the lifetime allowance this has also led to additional opportunities to advising these clients around whether or not to crystallise their funds or to restart contributions if they have existing protection in place.”
Doug Brodie, founder of Chancery Lane Income Planners, says as the big shift in the global financial landscape has been driven by heightened inflation, consequently that has driven the change in yield environment.
"In as much as you can obtain yield," Brodie adds. "This shift has happened rapidly, you only need to cast your mind back to Q1 2022 when the phase Tina ('there is no alternative') was the buzz acronym due to toppy stock markets, non-existent interest rates on cash, and anaemic bond yields.
"Some 18 months later, there are numerous yield options; dividend yields are more attractive, offering around 5 per cent for some firms in the FTSE100 for example, while fixed income yields (gilts) are just over 4 per cent. Bank accounts even yield around 5 per cent, which for some is an attractive risk-free return.
"It should be noted that quantitative easing has now reversed to quantitative tightening. The days of cheap money have gone, so any expectation to go back to days of old are highly unlikely."
