Six months ago a friend of mine retired as a GP. At the time she was looking forward to a long holiday. Next week she has a job interview for a part-time role that will use her knowledge and experience. She is not concerned about the income; she is more concerned about her lifestyle.
Having enjoyed the summer, she says she is in need of more leisure time after a long pressured career, but conversely she needs more than just day after day of leisure time.
So, she consulted a financial adviser about her financial plans in retirement. The good news is her income from the part-time role will be close to the national average wage for full-time workers, so her income needs will be very different from those she spoke to her adviser about and will need to review.
Having been in the NHS pension scheme she has a Defined Benefit pension. However, what if she had been in another profession and retired with a Defined Contribution Pension? If she had bought an annuity she could now be in receipt of a large amount of income she no longer needs. In that situation would her adviser talk to her about whether the decision to retire is permanent and whether she would change her mind?
According to the Centre for Ageing Better, 20% of those who have retired in the last five years have admitted to finding it difficult. The same research found only a half of those planning to retire in the next five years are looking forward to it. 41% were concerned about managing money; 33% had concerns about being bored; 32% were worried about missing their social connections and 24% were worried about losing their purpose in life. 17% were worried about being lonely in retirement.
56% of those who had retired in the last five years revealed that they did not seek any advice or help to prepare. This fits in with research from LV= that found 61% of those approaching retirement did not intend to use a financial adviser.
On the face of it a financial adviser should be able to help those who are concerned about managing money. However any plan would be dependent upon the lifestyle and the intended spending of the client. If the client has concerns similar to those expressed by the respondents to the Centre for Ageing Better Research, a discussion about how the worries expressed might be alleviated, may also lead to a plan with fewer money management concerns.
Does this mean a retirement income adviser should also be a counsellor? Probably yes. My GP friend is definitely experiencing some regrets about retirement. For some it is not all it is that it is built up to be hence the 20% who admit to finding it difficult.
My GP friend has no money worries, yet many who retire do. In November 2014 the Pension Policy Institute produced a paper entitled, ‘Transitions to Retirement – How complex are the decisions that pension savers need to make at retirement?’ While I can take or leave the subject matter, I find the charts on the amounts of pension savings held by those approaching retirement to be very interesting.
60% of those aged between 50 and their State Pension Age are predicted to have less than £27,500 in their DC Pension when they reach State Pension Age. Yet the median DB pension in 2014 terms is expressed to be £5,400 per annum. They also report that generally the larger the Defined Benefit Pension the smaller the Defined Contribution Pension and vice versa. However, only 25% of people have more than £51,300 in their Defined Contribution pension.
These numbers probably explain many of the fears of those approaching retirement. So is this large proportion of the population in need of advice as to the alternative ways of moving into retirement before we get onto their actual financial plans?
This advice could include working for a while longer if they are physically able. How many people do you come across who believe they have to retire at a fixed age? Also, a discussion could be opened up about how they could use their housing wealth as they progress through their retirement.
As can be seen, there is a lot more to retirement than just pensions.
Bob Champion is chairman of the Later Life Academy (LLA)