Financial Security in Retirement

I was struck by the clear message that catering for an ageing population will be one of the defining economic and political challenges of the next 50 years in the recently published report by the Office for Budget Responsibility. The number of people aged over 65 is projected to rise by nearly 50% in the next 20 years and centenarians have quadrupled since 1981 according to official figures.

This demographic shift is likely to result in higher taxes and spending cuts to support healthcare, state pensions and long-term social care. The alternative is an ever widening budget deficit, which would be unsustainable.

As many parts of the West Country are favoured retirement destinations, this increase in the number of pensioners and longer average life expectancy are particularly relevant for our region.

Clients in retirement are faced with a myriad of choices and challenges as they seek to maximise their financial security and avoid the possibility of running out of money in a difficult economic climate, whilst often also seeking to preserve wealth for children or particular charities. Pension income options have become increasingly complex and making the wrong choice can prove disastrous. Investing for income has never been more difficult, with interest rates on cash deposits at historically low levels and inflation stubbornly above the Bank of England’s 2% target. Tax planning for higher rate taxpayers requires diligent advice as tax avoidance is increasingly in the spotlight. In addition, there remains considerable uncertainty with regard to state support for care fees as the government consults on its plans to cap elderly care costs at £72,000 from 2016.

Many people are unable to make adequate pension provision and the state can no longer be relied on in old age. How will this looming crisis in retirement finances be resolved? One possible solution is for pensioners to tap into equity in their homes either by trading down or taking out an equity release mortgage. Housing equity accessible to people over state pension age is estimated to reach £350b by 2030. Property assets could go a long way to supporting many clients’ standard of living in retirement and helping to bridge any shortfall in pension savings.

It can be difficult for clients to know who to trust and where to seek advice. This is often a particular dilemma for more vulnerable clients in later life or where a relative holds a Lasting Power of Attorney. I suggest the best starting point for choosing a financial adviser is a personal recommendation for an independent Chartered Financial Planner. This should ensure adherence to strict professional ethics, technical ability and independent advice on a fee-basis. For advice in later life, covering areas such as care fees, equity release and estate planning, a specialist adviser should ideally also be a member of the Society of Later Life Advisers.

[Matthew Clark, Western Morning News, 25 July 2013]

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