We’re all living longer, so every financial planner must take into account that clients could easily live well into their 90s.
“Structuring a retirement portfolio has always been a long-term endeavour,” says Jonathan Cooper, Senior Paraplanner at Drewberry. “However, longevity means advisers must educate their clients first and foremost about the importance of saving more to afford a longer retirement.”
Such education is vital given the parlous state of many UK pension pots. Drewberry’s 2017 Wealth & Protection Survey found more than.
The dearth of retirement savings comes despite the fact that the government has been fairly generous in terms of allowances to build sizeable retirement nest eggs.
“For instance, a couple can make tax-advantaged savings of £120,000 per annum into pensions (£40,000 each) and ISAs (£20,000 each),” continues Jonathan. “Over 20 years, excluding investment return / loss, this is a pot of £2.4 million, which roughly translates to an £80,000 per annum drawdown across a 30-year retirement. The problem is that too many clients simply aren’t able to make these levels of commitment due to financial pressures – both perceived and real – during their working lives.”
The difficulties people confront in planning for a longer, financially secure retirement is one of the main drivers behind the new VitalityInvest proposition.
To the layman, structuring retirement income through tax planning and proper portfolio management to promote its longevity seems a dark art, making advice invaluable. Time and time again the value of such guidance has been shown, including joint research from the International Longevity Centre and partners that revealed individuals who take advice on their investments could end up almost 40% better off in liquid assets compared to those who receive no advice.1
Should an individual be lucky enough to make full use of their more common allowances, the market provides yet further options to build up even larger pots. “We may place wealthier clients who’ve run up against other tax-efficient allowances into products such as venture capital trusts (VCTs) and enterprise investment schemes (EISs) if their risk profile permits it,” explains Jonathan.
“As advisers, we’re also increasingly seeing clients who’ve built buy-to-let portfolios for retirement,” says Ben Sassoon, Financial Planner at Drewberry. “However, residential property has fallen foul of successive Budgets which have imposed penal tax rates, making it a far less tax-efficient investment and in some cases even creating a loss for leveraged retirees.”
Of course, saving for retirement isn’t just about accumulation. At some point you have to turn your pension into income for your later years. VitalityInvest have recognised this with product features that encourage individuals both to save more consistently and to adopt a more responsible approach to managing income in retirement – while at the same time taking better care of their long-term health.
“It’s common that individuals’ risk profiles change between accumulation and decumulation, influencing the level of involvement needed in markets as the client ages,” says Ben. “Using cashflow modelling software helps clients with how much they need to be contributing and how much risk they actually need to take to meet their retirement objectives as they age. We can also model market crashes, taking into account a faltering investment market in the longer-term and what impact this could have on a retirement pot over a longer retirement going forward.”
For investment professionals only. VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority.
- International Longevity Centre – UK, , 13 July 2017.