As I write this, no-one knows what the outcome of Brexit will be.
MPs are leaving the main parties, Cabinet Ministers are threatening resignations to prevent actions they do not want to see, the Prime Minister has announced she is once again going to defer the ‘meaningful vote’, and is now talking of delaying the Brexit deadline. By the time you read this more will have occurred and the events I have mentioned will be confined to history.
The problem we have is that, in the end game, ‘No deal’ doesn’t mean ‘No deal’. We cannot be neighbours without some sort of a deal covering how we live alongside each other. However, until deals are agreed, we have a temporary situation of having no deal in existence with the EU.
On the other hand, the ‘deal’ the Government has negotiated is not the final deal. It is an agreement covering key issues, a transition period with aspirations both sides have for the final deal.
With such uncertainty your guess is as good as mine as to what the relationship with the EU will be in five years. There are so many variables. Where do you start? What one group wants from Brexit, another group will say they want something different. With so much to cover and so much detail to go into is it possible for a final, final deal to be agreed in such a timeframe? Let alone the two-year transition period?
This is where I begin to draw parallels between retirement income planning.
The pensions industry still has not come to terms with the freedom and choice reforms. You continually see debates around whether pension savings should be used for lifetime income – as a pot of money to be spent as their owner wishes; or be used as a way to pass wealth to future generations to mitigate death taxes?
Lifetime income proponents’ debate whether that income be guaranteed; if not how the underlying funds should be invested; or whether a combination of solutions should be used.
Then there are those who are against any thought of using housing wealth to finance retirement. It may dissuade people from saving into pensions. However, we know around 20% of over 50s intend to do just that. But this opens up further debates which complicate the pension debates.
Housing wealth can be run down and passed onto future generations before death to mitigate death taxes. In which case an amount of housing wealth will be drawn upon before pension wealth is used.
If housing wealth is to supplement pension savings, should it be realised through downsizing or through a mortgage? If through a mortgage should equity release be used? As with the pension freedom reforms there are still many who are disparaging about the use of equity release.
The method of withdrawing equity will impact upon the solutions used for pension savings. If an irreversible decision has been made as to how to use the pension savings this may impact on housing mortgage solutions used.
Although housing and pension wealth does cover the vast majority of wealth held by those approaching, and in retirement, many have significant wealth deriving from other savings. ISAs, SAYE share save schemes and life assurance policies. These need to be factored into any retirement income strategy that is developed.
There are countless debates going on. I will therefore return to the Brexit analogy.
Fishermen want control of our waters and do not want a deal that incorporates EU fishing quotas. Those who export the fish they catch want free access to the EU markets where they sell the majority of that fish. The majority of the fish we eat in the UK is imported from the EU.
In many other industries similar contradictory debates are occurring. What is good for one industry or part of an industry may be bad for another. And so, it will go on. As we go forward the arguments will just become more granular with fewer people understanding the detail and why certain courses of action are taken.
The most important variable in retirement planning that makes everything so complicated is the customer. It’s not just the customer, it’s their family, their health, their objectives; and even their employer. They all influence the final decisions that are made.
The Brexit debate is currently at a national level on what sort of Brexit is best for the country as a whole. However, the final verdict on whether a good deal has been achieved will be how individuals judge what the outcome meant for them, their communities and families.
The best retirement solutions begin with the customer circumstances. No two retirees will be the same, they need individual solutions. To arrive at the best solution, individual adviser bias needs to be put to one side.
In a world where there are no correct solutions and countless variables, there can be no regulatory guidance as to what should happen in any particular situation.
Some decisions are irreversible and have costly consequences. How would an Ombudsman rule if a future case was presented to them on the basis that a better solution was available but was not considered because the adviser was not qualified to practice in that field?
It is for this reason why everyone who provides later life financial advice should have a good working knowledge of all aspects of the later life market.
Bob Champion is chairman of the Later Life Academy (LLA)