Not only could the lack of a set pattern for retirement help clients in important ways, writes Kerry Nelson, it is also another excellent opportunity to get the message across about the benefits of bespoke financial advice
Is it time to consider the advice implications of phased retirement on a more formalised basis? At Nexus, we are seeing fewer clients retiring at a set age – indeed, some are changing their plans a few years short of retirement. This has led us to think about what this means for our advice – and particularly our communications – to clients.
Of course, much of this reflects changes in society involving shifts in attitudes towards what retirement means, how long people want to work for and what they want to do in retirement.
In a sense, however, the policy is also driven from the top. Advisers will know about pension freedoms in huge detail, but that is only one of several significant policy changes. For one thing, the government abolished the default retirement age in 2011, meaning employers could not compel employees to retire when they reached 65.
Tor another, the state pension – not without some controversy – is rising to 66 between this year and 2020 for both men and women, then to 67 between 2026 and 2028 and then to 68 by the late 2030s with further rises linked to life expectancy.
Then, if savings on the state pension were not enough, PricewaterhouseCoopers calculated earlier this summer that were the UK to match New Zealand in terms of the over-55s in the workforce, it could add £180bn a year to the UK economy. All this and more is certainly having an impact on behaviour around retirement.
A recent report from the Office for National Statistics, Living Longer: How are population is changing and why it matters, noted that half of all people working past state pension age in 2015 reported doing so because they were not ready to stop work. The second most common reason given for continuing to work was that they had to pay for essential items such as bills (15%).
What may be of most interest to advisers is that only 7% of people working past state pension age said they were doing so because they had to boost their pension pot – though, as advisers, we know retiring later is likely to do just that if people do not start to draw their pension.
Citizens Advice also sees a new pattern of retirement in a report entitled Life after pension choices. It noted that, by 2014/15, 1.1 million people aged over 60 were both in work and drawing pension income. This had almost doubled up – by 0.5 million in the previous decade. Citizens Advice expects this number to increase further, at least partly due to pension freedom.
Yet phased retirement is also moving beyond the lobby groups and into public consciousness. Radio Four recently interviewed a former Foreign Office civil servant, who began to offer coaching – first to colleagues, then switched gradually into coaching full time, then part time and who is now slowly reducing the coaching role and increasing her involvement in amateur dramatics. Presumably a very nice civil service pension underpinned some of this, but it does demonstrate the change in attitudes.
New organisations are springing up to offer help to those not yet ready to retire – for example, membership platform Next Up, which offers advice to, among others, those considering a portfolio career, That is the sort of person who may very well want the help of a financial adviser as well.
As a result, we have been thinking what all this means for our business. Of course, for most clients, retirement remains a very important goal – sometimes accompanied by a desire to travel or to help children or even just to put their feet up. Others find it difficult to contemplate retiring at all, either being keen to set up a related business or do something altogether different.
We do not have many people on our books who need to work longer for financial reasons – and, after years of their taking our advice, we should hope so too.
At the same time, there are clearly some very detailed decisions to think about relating to tax, how much income clients need, what if anything they should be contributing to a pension during the second or third career stage, calculations about the state pension entitlement and potentially delaying taking it, and indeed what pot of savings clients should be withdrawing an income from. To offer one example, we find it a little bizarre that some clients with defined benefit pensions do not consider taking the scheme pension and perhaps accessing other pots of savings.
All told, then, our advice has sometimes become a little more complicated, but hopefully also a little more valuable too. We have been putting a lot of thought into how our business is positioned, with plans for significant growth, but we have decided that the increasing prevalence and demand for phased retirement does not require a significant change in our proposition.
We are, however, adjusting our marketing and communications to highlight the idea of phased retirement and how it can be done – talking not only about the financial implications but also the life rewards.
We are also considering how to become a hub for information about the sort of second careers our clients may well want to embrace – always ensuring our clients understand that we may be able to help them adjust their finances to meet new goals, even if they decide upon them relatively late in the day.
The lack of a set pattern for retirement may benefit clients in a host of important ways. It is also another excellent opportunity to get the message across about just how beneficial bespoke financial advice can be.
Kerry Nelson is managing director of Nexus Independent Financial Advisers and one of the judges of Retirement Planner‘s inaugural Women in Financial Advice Awards