Recent stories in the press have raised concerns about pension planning or, rather, the lack of it.
The Institute for Fiscal Studies has launched a wide-ranging review of the pension system, looking at whether people are saving enough and if more support is needed for people to use their funds appropriately.
The Pensions Review is a multi-year project that will analyse the consequences of current pension policy, the economic environment and individual behaviour for living standards in retirement.
One of the biggest questions surrounds the effectiveness of auto enrolment which brought millions into workplace pensions, but at much lower rates of saving than required.
There is also the issue of the increasing number of self-employed people who are failing to save into a pension or not at a sufficient level to prepare them for their future retirement.
A stark example came this week with the news that over 50,000 people have left the NHS Pension Scheme this tax year due to affordability.
The rule of thumb often referred to in the financial services world is that you should halve your age to determine the percentage you should be adding to your pension pot each year, so if you start saving at 25 then it should be 12.5%, rising to 20% if you are 40.
It is intended to be a simple device to illustrate the importance of starting to contribute funds into your pension scheme as early as you can.
Of course, as we regularly remind our clients, no two people’s retirement goals are the same. That is why we create bespoke plans for clients intended to meet their specific objectives in their later years.
What we do see in many cases is an underestimation of the size of pot that will be needed to meet the desired quality of retirement. This is partly due to the need to factor in inflation and the fact that life expectancy is generally much greater than it used to be.
The decision by Chancellor Jeremy Hunt to abolish the lifetime allowance on pension pots continues to reverberate.
Our team is working closely with a number of clients, using our specialist knowledge and tools to model the implications of the changes and to enable them to avoid any future traps.
This is a complex area, supporting clients with any requirements to take immediate action, but also with one eye on the possibility that a future government may look to reinstate some form of lifetime allowance.
Inflation proving sticky
The latest UK inflation figures showed a smaller than expected fall to 10.1% in the year to March compared to 10.4% in February.
Experts had hoped that the rate might have fallen back to single digits, but continuing soaring food prices meant that this was not the case.
This will be linked to the effect of high energy costs, which are starting to come down but not in a way that is yet to have a significant impact on the inflationary rate.
There is now also a view among many commentators that the Bank of England will inevitably react by increasing interest rates when its Monetary Policy Committee next meets on May 11th.
While we will keep an eye on the MPC’s decision and any short-term implications, the planning we undertake on behalf of clients is much more about the medium to long term, recognising that there will be ups and downs in the economic picture, and putting in place robust and diversified plans that deliver the retirement goals our clients are seeking.