Recently an elderly lady told me of a visit to see a doctor at which she was accompanied by her daughter. The doctor was asking questions about the lady’s symptoms which the daughter answered. Eventually this led to a conversation between the doctor and the daughter when suddenly the elderly lady piped up, “Excuse me, I am here and I can talk for myself”.
The lady comes to mind as a result of recent developments around what retiring people need. Firstly, there was Royal London’s analysis that people retiring today require £260k in their pension to be able to afford to retire. This increases to £440k if they are going to rent in retirement.
Secondly, there is the continuing debate about default pension drawdown pathways; someone is going to decide what is best for those who retire with minimal engagement with their retirement pot.
Clause 21 and 22 of the Financial Guidance and Claims Act are now on the statute book. Clause 21 requires the Secretary of State to put in place regulations banning cold-calling about pensions before the end of June this year or to explain to Parliament why this has not been done. This is a tight timescale. Clause 22 enables regulations to be placed to widen the scope of clause 21 beyond pension cold-calling.
“Excuse me, I am here and I can talk for myself.”
The Royal London analysis is obviously based on a number of assumptions, or averages. For example, the assumption is that a person retires at age 65 on average earnings. But, for how many people is that true? For every assumption made there are large numbers of people to whom the assumption does not apply.
The Royal London report is of great value and if you have time I recommend you read it. For a start it puts a value on home ownership – £180k. This will vary geographically due to variations in rents across the country however what it has done is illustrate the importance of housing wealth in retirement planning. It is not a question of saving for a pension or buying a house. It is a question of how best to combine the two.
Another assumption is that someone retiring on average earnings requires a replacement income of two-thirds of their final earnings. Replacement income is designed to identify what is needed to maintain the living standards experienced whilst working. Basically, maintaining the individual’s spending. Someone with large commuting costs on average earnings is going to be in a different position to someone who walks around the corner to get to work. The former experiences a large reduction in spending that the latter will not.
What if I have not accumulated £260k of pension savings? This is likely to be the situation for a large number of people who are currently approaching retirement. If I have accumulated housing wealth how can I use it to supplement my pension? Where can I obtain guidance on what my options are and the pro’s and con’s of each? These are the questions that will be uppermost in the minds of large numbers who are currently retiring.
This leads onto default drawdown pathways. The proponents say retiring people need these so that they do not have to engage with their pension(s) as they move into retirement. However, how I use my housing wealth dictates how I will use my pension and vice versa. What income should the drawdown pathway generate? What if it is insufficient to cover my spending? Eventually will I be forced to release some money from my home in the wrong way at the wrong time? Will default drawdown pathways force me into costly financial errors?
“Excuse me, I am here and I can talk for myself.”
We need to protect vulnerable consumers from scammers; therefore we need to prevent contact with them. At the time of writing we do not know the scope of the regulations, but the wider they are drawn the more difficult legitimate marketing campaigns will become. If they are too narrow they will have minimal impact on the scammers. Scammers will always find a way around whatever regulations are in place.
To make life difficult for the scammers we need to educate their potential victims so that they become wary of unrealistic claims and increase the availability and access to good quality advice.
The more I know the more questions I can ask and with the help of trusted professionals, the more likely it is that I will make sensible decisions instead of being told what is good for me. Is that not the modern doctor-patient relationship? The doctor gives information on the alternative treatments for the patient’s symptoms and aids them in coming to the best solution for themselves.
How many people retire with £260k in their pension pot, let alone rent their home with £440k? This illustrates the need for advisers be they pension, or mortgage advisers to become the financial doctor for their clients. If they trust you like their doctor and you become their go-to financial guru you will not be affected by any cold-calling bans however they may appear.
Bob Champion is chairman of the Later Life Academy (LLA)
