What will be on IFA clients’ minds right now?
Most independent financial advisers (IFAs) will spend much of their time dealing with clients’ concerns over their pension pot and what it will generate in terms of income once they cease working; consequently, they may have been busy over the past few months dealing with queries prompted by media stories about issues that may affect their plans.
Despite their investments, many people see their state pension as the bedrock of their retirement plan; however, in May, the government said there was a problem with its own projections of individuals’ pensions.
The admission that some three per cent of the 12 million forecasts produced over the past three years were erroneous means that hundreds of thousands of people may be planning their retirement on false information provided by the government’s own website. The government has admitted there is a problem, so IFAs may advise a call to the hotline on this issue.
Women in the workforce face another problem, according to the Pensions Policy Institute. Women are more likely to take time off for care responsibilities and can end up with a pension pot just half the size of their male counterparts by their 50s. Just a decade later, this could have shrunk to one-third.
When addressing a couple’s retirement needs, it is also important to note that almost one and a half million working mothers earn less than £10,000 per annum and do not qualify for automatic enrolment in company pension schemes.
Brexit is also an issue affecting pension forecasts. As concerns rise about the potential financial impact, fluctuations in currencies, commodities and stock markets are making life difficult for IFAs keen to protect their clients’ investments.
A mixed portfolio has always been the key to generating a significant income in retirement. Recently, however, low interest rates, diminished gilt yields and the turmoil affecting defined benefit pension schemes have meant that investment policy has had to be reviewed.
Fortunately, many IFAs will be using financial adviser software from providers such as www.intelliflo.com/financial-adviser-software to help address these issues.
One major wealth management company has suggested that to achieve the magical 7.5 per cent yield provided by low-risk bonds in 1995, IFAs would have to create a portfolio boasting 88 per cent of the fund loaded into stocks and alternatives, with bonds representing just 12 per cent.