By Fiona Tait, Technical Director, Intelligent Pensions
1. Starting a new job
With the advent of automatic enrolment, the majority of individuals in this situation are likely to begin saving without the need for any other intervention, so a new job on its own does not in itself lead to a need for additional financial advice. Where it can be useful however, is for older workers who have accumulated previous pensions and for whom retirement is beginning to become a reality, rather than a theoretical concept. The start of a new financial life stage could be a good time to focus more on retirement outcomes and to assess exactly where they stand in relation to the retirement they think they will have. The majority of unadvised people have very little idea of how much they need to save to fund their lifestyle, when they are no longer earning and financial advice can deliver a personalised cashflow model which takes into account what has been saved, what will be saved and how the accumulated funds are likely to be spent in future.
2. Starting a family
Starting a family can put considerable financial strain on the prospective parents and saving for retirement is likely to be the last thing on their minds. At this stage, guidance persuading people of the value that maintaining pension contributions can deliver, especially in the early years of the saving journey, may be enough. It may be however that this is not their first family, in which case it is important to ensure that any financial arrangements are set up to deliver the best outcome for all concerned. This may lead to consideration of wider issues around how both families are to be supported in the future and whether it would be advantageous to restructure existing savings to deliver the required result.
3. Divorce
Divorce can have a devastating impact on retirement planning as financial assets are very often held in unequal proportions between partners within a marriage or civil partnership. Where one partner, usually but not always the female, has given up work to raise children the unspoken ‘bargain’ is that the breadwinner will support them and the family from their earnings. Divorce breaks that agreement and without compensatory action one partner can be left with very little.
Pensions are a particular problem for a number of reasons. Firstly, the breadwinner tends to see them as a reward for their own hard work and can be resistant to the idea that their partner’s ‘work’ in looking after the family also deserves some financial reward.
Secondly, a non-earning spouse with limited pension provision at the point of divorce is also likely to have less scope for building one up in the future after a career break. Finally, pensions can be very complicated for non-financial people to understand and, in the case of final salary arrangements, difficult to value. Solicitors are required to take pension assets into account when arranging a settlement, but it is easy to see why a couple negotiating their own financial settlement may overlook them.
Financial advice can support the redistribution of the marital assets as well helping one party or the other to rebuild their retirement savings or manage any newly-acquired funds. It can also help to deal with specific tax traps such as the lifetime or money purchase annual allowances which a non-pensions professional may fail to spot.
4. Death
The death of a partner or close family member can be the single most devastating thing an individual has to deal with, which is why most clients in this situation will be classed as vulnerable. This means that a time when financial decisions are most certainly going to be required the person making them is least likely to be in a rational frame of mind to do so.
Financial advice deals with the monetary detail from an unemotional viewpoint which has the client’s best interests in mind. Much of the planning must be done during the pensioner’s lifetime however there are still decisions to be made following death. Spouses who are nominated to receive their partner’s pension have to decide whether to take their benefits as a lump sum or an income, or indeed whether to take them at all. If the money is not required, the pension funds may be left invested or they may be redirected to another family member.
Most people will face at least 3 of these situations at some point. Financial advisers should be encouraged to identify when they occur and to directly engage with their clients when they happen, however employers can also be instrumental by advocating financial advice when they become aware of a major change in their employees’ lives.
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