As many of you will know, I have spent a couple of months in that strange place called ‘the garden’, which has meant spending time with my children and doing a variety of odd jobs around the house.
Perhaps not surprisingly for someone who works in our industry, it also gave me a little time to consider how much savings I need to build up over the next few years to help me have a rewarding retirement when I do decide to stop working completely.
Given I would term myself a pension and retirement expert, some may see it as embarrassing for me to admit I genuinely don’t know how much savings I need!
State pensions are topical but it feels too far away to be in any way confident about how much I will receive
There are a great many unknowns – when I decide to stop working, whether I ease into retirement through part-time working and what my wife decides to do.
State pensions are a topical issue but, for me, it feels too far away to be in any way confident about how much I will receive.
Then there are uncertain outgoings, with children potentially going through university, getting on the housing ladder and so on. That’s before we get to the economic environment and what potential investment return I can achieve on existing and new savings. And there is, of course, the elephant in the room in terms of my life expectancy.
There is no ‘right answer’ to the question of how much I need. If I find this a complex thought process, then what must many other savers experience?
It remains to be seen how comfortable firms will be in pushing towards a more personalised approach
Those who are fortunate to have advisers are in a great place. An adviser can give confidence and reassurance, and use tools such as cash flow planning and stress-testing to illustrate potential outcomes.
For the many who don’t have an adviser, the position is a great deal less clear. There is a huge amount of legislative and regulatory changes being discussed at the moment – hopefully some of these will help individuals plan their later life.
Pension dashboards, while much maligned, will at least give people the ability to view all their pensions in one place and get a view of their overall pension saving (hopefully).
However, it won’t highlight other savings vehicles such as Isas, bonds, mutual funds and property, which may also be used to fund a retirement – and, from a tax perspective, using a combination of these different wrappers may well be the most efficient outcome.
It feels like a variety of individual measures are taking place without any wider strategic view
The discussions on the advice/guidance boundary – with a policy paper expected this autumn – may mean firms can give better and more personalised information to help individuals approaching retirement.
But it remains to be seen how comfortable firms will be in pushing towards a more personalised approach and how far risk and compliance functions may allow them to, given the potential for financial and regulatory penalties if they get it (or are perceived to get it) wrong.
There are a host of other policy developments being considered, including small pots consolidation, the FCA’s work on retirement income and a variety of disclosure changes (following on from other changes last year), as well as the recent changes introducing default funds and cash warnings for many customers.
I am a firm advocate of financial advice and we need to encourage more people to go down that route. However, many individuals won’t be able to access it. Improving engagement and understanding is crucial to help more of these people have a rewarding retirement.
Having one single entity in charge of all retirement change would surely help pull these various strands together
While some of the legislative and regulatory changes will help people to do that, it feels like a variety of individual measures are taking place without any wider strategic view considering the combined benefit these will bring and what gaps, if any, remain.
The hope is we are moving in the right direction. But having one single entity responsible for and in charge of all retirement change would surely help pull these various strands together – and therefore make sure people get help to work out how and when they can retire with sufficient savings for their circumstances.
Andrew Tully is technical services director at Nucleus
Is it really rocket science? You save as much as you can and keep an eye on potential tax. Not all your eggs in the pension basket. ISAs, Bonds and even cash. Watch the outgoings at retirement. Do you really need all those subscriptions? Then try to not retire before 70. Ensure you have maxed your state pension. If the wife works or not ensure she has maxed her state pension and if necessary made voluntary contributions. Remember its joint income that counts. Then whatever you have managed to amass – that’s what you have to live on.
Planning, planning, planning preferably by a professional adviser. Take into account the old Mars advert; “work, rest and play” and remember that ‘in retirement’ there is no ‘work’ so you have to be able to afford / cover for “play, rest and play”?
Too true Edward. For most the definition of retirement is “What you do between doctors appointments”.