A recent report by Professional Adviser reveals that a typical person aged between 50 and 64 has pension pots that are 58% below the level they will need in retirement.
Furthermore, it also reveals that two-thirds of those in this age group do not know how much income they will need when they finish work to enjoy the lifestyle they want.
Despite this, the article also shows that just 20% of people speak to a financial planner. Yet, doing this could help pension holders understand the value of their pension pot, whether it’s going to be enough for their retirement, and what action they could take to boost it.
If you are an accountant or solicitor with clients in this age group, they may not understand how much income their pension pot will provide, which may jeopardise their retirement. Read on to discover five ways a financial planner could help ensure your clients enjoy the retirement lifestyle they want.
1. Help your client create a financial strategy
Central to good financial planning is having a strategy, and preparing for retirement is no exception. This is why a financial planner will create a plan that takes into consideration your client’s current financial position, the value of their pensions and the lifestyle they would like in retirement.
By assessing these, a planner will be able to confirm whether your client could face a shortfall. If they do, the planner will develop a strategy that could help get the retirement fund to where it needs to be, so that your clients can enjoy the lifestyle they want when they finish work.
2. Help boost the size of their pension pot
A financial planner can use cashflow modelling software to assess whether your client’s pension pot will support them in retirement. If it won’t, the planner can explain how much more your client will need to contribute into their retirement fund in order to achieve it.
Remember, pension contributions typically receive tax relief, which means every £100 placed into a retirement fund only costs your client £80 if they’re a basic-rate taxpayer (2022/23). If they are a higher-rate taxpayer it will cost just £60, or £55 as an additional-rate taxpayer.
This means that increasing contributions could provide a significant boost to your client’s pension pot relatively quickly. Please note, your client’s tax relief will be limited to the Annual Allowance, which in 2022/23 is £40,000 or the amount they earn, whichever is lower.
3. Use carry forward
If your client has recently received a significant lump sum, for example through redundancy or inheritance, they may be able to make a substantial pension contribution and still receive tax relief.
This is because “carry forward” means your client may be able to use any unspent Annual Allowance from the last three years. In other words, they might be able to contribute up to £160,000 in 2022/23, and still receive tax relief.
As strict rules apply to this, your client should speak to a planner to ensure it’s right for them.
4. Expose your client’s pension to the right level of risk
The assets contained within your client’s pension typically consist of stocks and shares, bonds and cash. As potential growth is usually provided by the higher-risk funds, such as stocks and shares, not having enough exposure to these could mean the pension does not grow to the level needed.
A financial planner could confirm the level of risk your client’s pension is exposed to and, if necessary, switch it to one that provides greater growth potential while remaining at a level of risk they’re comfortable with.
5. Help locate lost pensions
According to the Telegraph, an estimated 1.6 million pension pots are “lost” in the UK. These could include pensions that belong to your client, which could be used to provide a significant boost to their retirement fund.
If your client is unsure what pension savings they’ve accumulated, a financial planner could help locate them and explain the best options available.
This might include consolidating all found pensions into one fund, which could increase the size of their pension pot and provide greater future growth potential. Merging pensions could also help reduce the costs associated with the pensions, which may mean your client’s retirement fund enjoys more net growth.
Get in touch
If you or your client would like to discuss retirement strategies or pensions, please contact us at firstname.lastname@example.org or call 01904 655 330.
As we are award-winning specialists in financial planning, named as a VouchedFor Top Rated firm in 2022, you’ll have peace of mind that we’ll provide your client with an excellent service.
This article is for information only and is no substitute for financial advice, so please do not treat it as such. Do not make decisions based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.