What is the Future of Retirement?
By 2018, roughly 12-13.5 million people will be saving into private sector defined contribution (DC) workplace pension schemes, to which they are automatically enrolled on employment.
Our Hertfordshire financial planners believe that DC pensions are on the increase, meaning that what people decide to do with their DC income on retirement will have an increased effect on their retirement wealth and wellbeing. Here are the principles that are set to shape the future of retirement.
- Extended life expectancy
Now that pension freedoms have been extended, people can withdraw as much as they like as long as they are over 55 years old. While this is a positive thing for those who would like to control their financial future more, it introduces the prospect of people running out of money.
With the latest projections suggesting the average life expectancy for males born in 2014 at 89.9 years, and females at 94.2 years, our extended life longevity means financial planning is vital.
- Your pension is for you
For most people with a DC pension, it’s likely to be their main source of income in retirement, alongside their state pension. As a result of increasing longevity, people should expect to have to use the vast majority of their pension to sustain their quality of life. Ultimately, this means that leaving money to your dependents in the form of an inheritance should be minimised for DC savers. This is particularly the case when the saver is unmarried.
- Sustained stability
You can drawdown as much as you like at any time, but that doesn’t mean you should. Given that once your savings are gone, they are gone for good, it’s essential that you speak with one of our financial planners about the correct level of drawdown; this will ensure stability and sustainability.
- Minimising volatility
While the prospect of increasing your pension through investment might sound enticing, you need to be confident about the sorts of investments you’re making. Strategic, low-risk investments are safe, but those of a more volatile nature could create chaos in your savings. This is where the help of an experienced financial planner will be useful.
- A flexible arrangement
Your financial advisor can be a lifeline when it comes to finding you the perfect pension solution. The ultimate goal should be flexibility. Down the line, you might discover that your existing pension vehicle is not giving you the best drawdown rate, and that you could be getting a better drawdown if – for example – your pension were in a mortality pool, with a cost associated with cashing out some of the pot by moving.
- Managing inflation risk
Keeping up with the inflation rate through your retirement might be a difficult task. If inflation increases dramatically, it can have a serious impact on your income during retirement, and therefore measures must be taken to help your income keep pace with the rising inflation rate. By speaking to your Hertfordshire financial advisor you can create an investment strategy that will produce a stable income.
The future of pensions means more financial responsibility for savers. Ultimately, the earlier you can start saving and planning, the better, as Simon Frost, Director at gpfm explains:
‘People should be planning their retirement as soon as they start work – so in their early 20s, typically. It works on the simple logic of compound growth’, he says.
‘People who have planned in advance will be able to decide when they retire and for how long, rather than letting the state dictate it to them. Retirement will look very different in years to come with people having to work longer if they have not planned in advance’.
To ensure that your financial plan is as strong as it could be, speak with one of our helpful advisors today.