Financial planning will come to the fore as a major Government review this week recommended speeding up increases in the state pension age, advisers predict.
The hotly-awaited Government-commissioned review by former Confederation of British Industry director general John Cridland into the state pension age recommends that it needs to increase from 67 to 68 between 2037 and 2039 – seven years ahead of schedule.
The review also recommends dropping the state pension triple lock in the next Parliament, while an analysis by the Government Actuary’s Department suggests the state pension age will need to rise to 70 if workers still want to spend around a third of their lives in retirement.
The dangers of consumers running out of money will become more pronounced as the gap between private and state pension ages widens, but advisers are seeing this as an opportunity for show the value of planning strategies.
First Wealth partner Claire Phillips says that a combination of cashflow modelling and aims and objectives analysis can help advisers toe the line between excessive withdrawals and unnecessary frugality.
Phillips says: “When we meet clients we start off with where they are now, what they’ve got, or haven’t got as the case may be, and talk to them about what they want to achieve in the future, rather than just saying ‘you have got X, you can get Y’.”
“Once you have done that we do crunch the numbers behind the scenes; if you do this, you will be able to crochet to your heart’s content, or go around the world for five years, whatever they want to do when they retire.”
“We are also helping people to take responsibility for their own decisions. People don’t realise how much money they need to maintain the lifestyles they’re used to.”
She also sounds a sceptical note on the recommendation of a Centre for Policy Studies paper this week which argued that pensioners should be placed into “auto-drawdown” from private pension age before being “auto-annuitised” at age 80.
Conusmers would take between 4 and 6 per cent of their pot a year under auto-drawdown unless they chose to opt out.
Phillips says: “If you have other sources of capital to last a lifetime, and you’re thinking about inheritance tax and got kids, why are you thinking about touching the pension?”
Cervello Financial Planning IFA Richard Earl says that providing cashflow forecasts at an early stage and setting up regular savings plans will help younger people prepare for the increases in state pension age.
Earl says: “When you start engaging with more people at a younger age and give them realistic expectations using cashflow modelling, with sensible inputs so people actually have an idea, then they can have a fighting chance of retiring before state pension age.
“As an industry we’ve been guilty of just looking for people with the assets already in place. I’m very happy to go and advise as sensibly as possible younger entrepreneurs or business people to start somewhere with an amount a month. Its possible for us to put sensible structures in place, for us to take a longer term view on a client that could be with us for the next 30 years.”