The perceived complexity of pensions, particularly under pension freedoms, means many clients will be seeking advice.
Those who do not already have an adviser or who feel they can navigate the pensions landscape themselves, may well run into difficulties – particularly when it comes to tax.
“Pension savers have a number of choices from age 55,” admits Stephen Lowe, group communications director at Just.
“Many will leave the pension untouched until nearer retirement, benefiting from further accumulation and growth in a tax-efficient environment.
“Changes to the tax applied to residual funds on death, which are outside the estate for inheritance tax purposes, have opened up new financial planning opportunities for those who have other sources of income and don’t need to touch their pensions,” he explains.
On the table
For many people, the benefit of purchasing an annuity will outweigh all the other options.
Increasingly, retirees are buying an annuity partway through their retirement when stability of income takes priority over flexibility.
Mr Lowe suggests: “Clients can still buy guaranteed income for life solutions and should shop around, ensuring they are fully assessed for enhanced rates based on their own health and lifestyle information.”
Drewberry’s pensions and investments expert, Neil Adams, confirms: “Although drawdown contracts have increased markedly since the pension freedoms, annuities are still an option on the table.
“While low rates have deterred many from making an annuity purchase in recent years, annuities can still form part of the bedrock of retirement planning for those who want a secure, stable income for the rest of their lives.”
The range of options available is wide and allows for several different combinations.
Just how can advisers make sure their clients end up with the right retirement solution for their later life requirements?
Verona Smith, head of platform at Seven Investment Management, urges that options should not drive the outcome.
“Clients need to start with assessing their needs – the need at this stage not being what is the product and investment solution, but rather what do they need to support their short-term cash needs, their medium- to long-term retirement needs and what they would like to leave (if anything) to their children,” she suggests.
“The next step is building the plan. This is where clients, with their advisers, should be making the most of the tax-efficient wrappers available to them and investment solutions which meet their required target returns.”
Finally, she says: “Then it is all about making it all happen in an efficient and cost-effective way.”
eleanor.duncan@ft.com
