It is a common understanding that the millennial generation has a preference for short-term saving over longer-term planning. In the news, we continue to read about younger savers potentially sleepwalking into a retirement nightmare that will end up with insufficient savings to cover the real cost of retirement.
It is certainly true a combination of government-led initiatives and improved financial education is needed to safeguard the financial futures of this age group. That said, there is a more pressing need to actively support those closer to retirement.
For those approaching or already at retirement age, there are many concerns when it comes to planning and saving enough money for the future, which need their own tailored approach to solve them. This is the generation – aged 45 and up – with accumulating defined benefits or defined contribution pension pots, but who are being forced to work or wait longer before they can claim their state pension.
Alarmingly, a recent Retirement Advantage survey suggested the increase in state pension age to 65 years old for both men and women has resulted in many soon-to-be retirees having to rethink their pension plans entirely and postpone their planned retirement date by up to 10 years.
There is also the socio-economic issue to consider, which come down to this being the generation who are continuing to financially support their children much later in life, supporting debt payments and providing for house deposits.
In fact, the Office for National Statistics has found the percentage of young adults living with their parents in the UK has risen from just over a fifth (21%) in 1996 to 26% in 2017 – a clear sign more support is needed for this group, who are having to juggle a multitude of financial responsibilities.
Advisers will realise these clients may have undercalculated, or have little idea about, the exact cost of retirement. Factoring in preferred lifestyle costs and later mortgage repayments is fairly straightforward, but anticipating ill health and the need for care is tricky and could wipe out savings and assets very quickly.
Understanding why this group’s financial needs differ, due to their ongoing support of the younger generation and back-seat approach to pension planning, will help inform how to advise them.
The pensions freedoms have allowed greater flexibility in planning for retirement and income drawdown products have gained in popularity and scale. As an example, our own data shows the average transfer values have increased from £150,000 in 2015 to £238,000 in 2018.
Beyond pension product consolidations, there has also been a move to greater holistic pension planning by reviewing all clients’ assets, not just the pension pots. As income requirements in retirement are not straight-line, different assets, including ISAs, investment bonds and savings plans, can be encashed at different times to meet varying needs on the retirement journey.
Advisers and paraplanners can use tools to produce comprehensive reports for clients. Technology has evolved to help this planning and analysis process, where clients can see and consider alternative income scenarios, giving them a better understanding of the options available.
These reports are automatically stored and it is crucially important that, having created a robust income plan for clients, this is regularly reviewed to ensure it stays relevant. Dependants may go and come back, investments may underperform, health may be impacted over a short or long period of time – any of which may be a reason to make financial adjustments for the future.
With easy access to previously produced reports, advisers and paraplanners can revisit and fine-tune them for each client review, and also provide evidence of their research and analysis as and when compliance comes to call.
Peter Bradshaw is a director of Selectapension