We got a call recently from a client of another financial advice firm, wanting to talk about her upcoming retirement. It appeared she was second-guessing the advice that she was being given and wanted a second opinion.
Her issue was that her existing adviser seemed to be strongly encouraging her (to put it mildly!) down one particular path in relation to the structure of her post-retirement money, and also that it seemed to be completed disconnected with everything that had gone before. She was being bombarded with new information about new structures and investments to consider, realised her decision period was short and was in somewhat of a spin. She rightly couldn’t understand how the passing of this milestone date heralded such a volte face in relation to her current investment approach.
This matters, and she was right to be concerned.
We believe that all investors should consider and have an understanding of their retirement options well before they actually reach their proposed retirement date, and ideally should have an idea of how they plan to deal with the choices that they are going to have to make between say, buying an Annuity compared to an Approved Retirement Fund. These decisions should be considered at least several years before they actually retire and ideally at least 5 years before normal retirement date.
The reason for this is that the asset allocation decision for their pre-retirement fund should reflect the likely decisions that are actually going to be made at retirement. There needs to be long-term plan in place, this is not simply a transaction to be implemented.
Consider some examples
If an investor intends to take 25% tax free cash and purchase an annuity, then their pre- retirement investment strategy should reflect this with a steady move to cash as retirement approaches until at retirement 100% of their fund is in cash.
Whereas, for an investor intending to exercise the Approved Retirement Fund Option, only 25% of the pension fund needs to be held in cash at the point of retirement. The balance should remain invested in a long-term investment strategy appropriate for the investor’s need, willingness and ability to take investment risk, as they may still have a 30+ year investment time horizon ahead of them.
Equally,advisers who are talking to clients about their retirement options have a duty to consider all the options that are available before making a recommendation. This could include options which do not pay the adviser any commission such as NOT taking a tax-free lump sum from a Defined Benefit Pension and taking the higher taxable income instead. The most suitable option in any particular circumstance must be identified by taking into consideration all of a particular client’s financial priorities, followed by a full and unbiased discussion about the risks which would apply to each alternative.
For this lady, unfortunately it was all a bit late. The investment approach of recent years bore little suitability to the post-retirement requirements of this client. This was not in her financial interest and the adviser lost out too, as the client’s trust was terminally lost.
The bottom line is that how you will take your retirement benefits should be planned years in advance. It may be a transaction on your retirement date, or instead your retirement date may be a single milestone on a total 40-50 year investment journey. That conversation with an adviser needs to start now.
At Global Wealth, we help retirees identify the life they want to live in retirement and then develop a plan to help you achieve that life. We focus on how you want to live in retirement and the quality of that life, not just on the size of your pension pot.
Would you like to find out more about how Global Wealth helps retirees to live life to the full?