Many comments have been made about Chancellor, Rishi Sunak’s, Summer Statement last month – in particular its impact on the hospitality industry, the housing market and employment prospects for the young. But what about those who are approaching retirement or have retired?
The closure of much of the economy has affected this age group differently. In that regard, they should carry out a quick financial check to see how they have been affected, and who better to do that than advisers. There’s an easy marketing message here, given how older clients might now be viewing their own future.
For those who are getting closer to retirement they may have been able to continue to work, albeit in different ways. The personal impact for them will be on their retirement savings and their future employment prospects. As the ability to spend has been much reduced some may consider themselves to be much better off.
Those who have been furloughed with reduced earnings will be in the same position but the reduction in earnings may have restricted the effect of any reduced spending.
Finally, there are those who unfortunately have lost their jobs or did not qualify for any of the support schemes. Their retirement plans may have been blown off course.
A person who is retired with a totally guaranteed income should find themselves no worse off, and the higher their income, the better off they may find themselves because of the lack of spending opportunities.
If, however they depend upon investments, either within or outside their pension for their retirement income, they will need to consider the impacts of the downturn on their investments and whether they can afford to withdraw the same amounts of income to spend.
Everyone will be in a different position. Don’t forget those who are partly employed and partly retired. A combination of the above scenarios could apply.
Those who have gained financially and are confident about their prospects may decide to spend some of their gains for the good of the nation. They may take advantage of the ‘up to £10 off meal deal’ and the 15% reduction in VAT in the hospitality sectors.
Is it their moral obligation to spend money to help those who may not be as fortunate as themselves? Those who consider it is may also take advantage of a grant to make their home more energy efficient, benefitting others in the short term and themselves over the longer term.
But what about those who are not better off? The ‘£10 off meal deal’ may be very valuable if they feel in need of a cheap boost to their morale.
We know from experience that those over 50 who lose their jobs often find it hard to get back into employment. The package of measures introduced by the Chancellor may make it even more difficult to do so given the number of expected job losses and the fact the package is geared towards keeping the young in work.
With some clients you may have to be a career counsellor, helping them to keep their work ethic going, giving them confidence in the skills they possess and how they can be used. You might encourage them to use those skills in a voluntary environment, which ultimately may help them and open doors. The economy will grow again although it may take a few months to rebuild some momentum.
A financial planning adage is to have three months’ spending money readily accessible for emergencies. We know many people were not in this position before the crisis hit.
So where can they go for some money to tide them over? If they are over-55, they may be able to access some of their pension in the form of tax-free cash. The things to watch are that they do not to take too much, which might impact on any State benefits they may be entitled to. Also, they will need to do this in such a way that they do not restrict the amount they may be able to contribute to future pension savings. This may be important if they return to work and need to rebuild their pension savings to make up for the withdrawal, or if they’ve suffered low investment returns or missed contributions caused by the lockdown.
The other alternative, particularly if they have retired, could be their house. Have they repaid the mortgage? Will they now have difficulty in repaying it? The stamp duty holiday which could be worth up to £15k may help with the possibility of moving house to release some capital. They will have to move fast though if everything is going to be completed by the end of next March.
However, as we know, some may find the thought of moving to a new house an emotional wrench. For them equity release might offer the solution they need.
Everyone will find themselves in different positions. The Chancellor has not offered much help to those about to retire or who are retired. Some do not need any help – they may be better off. Those who have been negatively affected will need help to plan their futures from where they find themselves today. There are solutions out there for everyone – and you can help your clients find them.
Bob Champion is chairman of the Air Later Life Academy