3 reasons that financial advice in retirement is so important

Since Pension Freedom rules came into force in 2015, retirement planning has become more complicated. A wider choice of pension options, coupled with the UK’s complex tax system, means that retirees now face a range of decisions as to how they maintain their lifestyle when they stop work.

Despite the complexities of modern retirement, research has found that older generations are the least likely to speak to a financial adviser about managing their finances. The survey, published in Money Marketing, found that 51% of people over the age of 65 had never taken any financial advice, with 57% saying this was because they could do it on their own.

Financial planning shouldn’t end at retirement. Indeed, it could be argued that seeking professional help is more important as you transition into your post-work life, simply because of the decisions you will face.

Clients need greater support at/in retirement

A 2019 report from the Pensions Policy Institute (PPI) looked into the complexity of financial decisions older people may face in later life. They found that, of people in the run-up to retirement (ages 55-64), 19.3% had received advice. This fell to 15.4% after the age of 65.

The PPI warned that the focus had been too much on advising clients during the ‘accumulation’ stage of building up their pension rather than at/during retirement. This is despite the introduction of Pension Freedoms in 2015, making the decisions throughout retirement a lot more complex.

The report said people were likely to need much greater support in terms of ongoing guidance and advice in later life in order to be able to make appropriate decisions about how to access and utilise their retirement savings to meet their needs.

Taking advice can have huge benefits in your retirement. Here are three ways working with a financial planner can help.

1. Research finds advice helps people to prepare for retirement

While just 15% of people over the age of 65 had sought financial advice, the results of the Money Marketing study showed some stark differences between those who had received advice and those who had not.

• Clients who had taken advice were twice as confident about being able to retire how and when they would like to
• More than a quarter of clients who had taken advice (27%) had set a target income for their retirement, compared to under a fifth of non-advised clients
• Two-thirds (67%) of people with advisers had allocated and already passed on money for their dependents. This compared to just 40% for people without an adviser.

2. Clients who didn’t take advice more likely to run out of money in retirement

As well as tackling the choices that modern retirement requires, research has also found that clients taking income drawdown without advice are three times more likely to run out of money compared to clients who have sought financial advice.

The analysis from data provider Moneyfacts compared the sustainability of withdrawal rates between advised and non-advised clients. Clients who didn’t take advice were typically drawing a higher percentage of their fund, making it more likely their savings wouldn’t last them for their entire retirement.

Moneyfacts head of pensions Richard Eagling says: “Drawdown has many appealing qualities for those seeking to maximise flexibility in their retirement planning but one of the key trade-offs is that individuals have to take on longevity risk for themselves.

“The fact that those individuals going it alone with their drawdown strategies are almost three times more likely to have depleted their fund compared with those taking professional advice should be a red flag moment.”

Accessing your pension without advice could also see you pay significantly more tax than you need to. Typically, if you take more than 25% of your pension savings, you will pay Income Tax on the remainder at your marginal rate.

If the lump sum, added to your other income, pushes you into a higher tax bracket you could face a substantial tax bill. This could reduce the size of your pension fund and, potentially, leave you short of income in later life.

3. Financial advice adds value

In 2019, the International Longevity Centre produced a comprehensive report that sought to quantify the value that financial advice provided to clients.

Their results were eye-opening. They found:

• Receiving professional financial advice between 2001 and 2006 resulted in a total boost to wealth (in pensions and financial assets) of £47,706 in 2014/16
• Fostering an ongoing relationship with a financial adviser leads to better financial outcomes. Those who reported receiving advice at both time points in the analysis had nearly 50% higher average pension wealth than those only advised at the start
• The benefits of financial advice are potentially greater for those termed ‘just getting by’ than for those considered ‘affluent’. The former saw a 24% boost to their pension wealth, compared to just 11% for more affluent groups.

What this means is that working with a financial adviser can provide genuine, tangible benefits to your pension wealth. And, regular reviews and meetings with your adviser also lead to better long-term financial outcomes.

Get in touch

As we have seen, there are lots of reasons why it’s advisable to seek advice at and during your retirement. Studies have shown you could be better prepared for retirement, better off, and less likely to run out of money.

Find out how we can help you create the perfect retirement. Email enquiries@prosserknowles.co.uk or click here to request a call back from one of our advisers.

Please note

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.