Advising clients on their pension: what the triple lock means for retirement planning

by | Dec 9, 2022

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By Finn Houlihan, Director at Arlo Group and Founder of ATC Tax

On November 17th, Chancellor Jeremy Hunt announced that the government would continue to protect the pensions triple lock, meaning the State Pension will increase by 10.1%, in line with inflation. It’s an announcement that will be warmly welcomed by many retirees, who will see their weekly pension payments rise by more than £20.[1]

But State Pension alone is still not enough to cover the costs of retirement. As pensioners face rising energy bills and food costs prompted by Russia’s war in Ukraine, many will be looking to cut costs or make use of other assets in order to maximise their income in later life. Others may need to consider changing their retirement plans altogether, and they will be turning to financial advisers for guidance. What do IFAs therefore need to consider to help these individuals make the most of their income and assets over the uncertain times ahead?

Back to work

 

Rising interest rates and inflation have significantly dented retirement plans and placed pressure on individuals to either postpone retirement or even go back to work. Research from Royal London estimates that as many as one in three people will change their retirement plan.[2]

For some clients, this could be a sensible decision in these challenging times. We are increasingly seeing individuals in the public sector in particular, such as those in the NHS, returning to work on higher salaries and putting some of that income into a retirement fund, while banking their current pension for later. These individuals will ultimately need guidance on the investment vehicle that is best for their savings, and to identify lower-risk solutions that can help to preserve their savings for when they do retire.

Advisers will need to be prepared to have an open conversation with clients about going back to work and be ready to discuss these issues with those who might find the idea of returning to the workplace challenging.

 

Cost cutting

Many advisers will be used to conducting a yearly or bi-annual review with their clients to assess whether their income matches their retirement expectations. With prices rising, this year there could be a need for a heavier focus on helping individuals to identify where they can cut costs, in order to make the most of their current retirement income. Advisers may want to consider undertaking a detailed review with their clients and identifying any ‘luxury spending’ that can be reduced or removed altogether. Subscriptions can be another culprit, so it’s worth asking clients whether they are still making use of any subscribed products, even small ones, as this can be an easy way to cut costs quickly. After all, little changes can make a big difference.

Long-term security

 

With the cost-of-living crisis seeing everything from energy to food prices spike, advisers will likely see more of their clients requesting to increase the amount they receive from any privately-held pensions or other assets from which they draw an income. Advisers will need to carefully consider the sustainability of any increase in pension income over the long-term.

There is good news in that the government expects this crisis to be a shorter-term affair. The next couple of years may be challenging, but this is not predicted to be a decade of double-digit inflation. Instead, all the indications point towards inflation falling at the end of 2024.

A small rise in pension payments may therefore be enough to provide the momentum needed to get through this crisis, alongside the increase in the Winter Fuel Allowance, government energy rebates and the inflationary rise to the State Pension.

 

These are just some of the issues that advisers will need to consider over the coming months, as they will only become a greater concern for retirees. Advisers will need to be prepared for ‘real’ and significant conversations with customers. Many of us will be very familiar with speaking about the value and performance of pensions, but we will soon find ourselves talking increasingly about income and expenditure instead. As advisers, it is up to us to ensure our clients feel heard and supported, and get the help they need on these issues, during these challenging times.


[1] https://www.bbc.co.uk/news/business-53082530

[2] https://www.peoplemanagement.co.uk/article/1806359/third-people-change-retirement-plans-due-cost-living-study-finds

 

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