The Big Question

Q. How have you seen people change their retirement planning strategies to weather the storm of current economic turbulence?

Q. How have you seen people change their retirement planning strategies to weather the storm of current economic turbulence?

Bob Bullivant is CEO of Annuity Direct
At the risk of upsetting the editor the biggest issue has been people listening to the media and not fully understanding their options. Headlines such as defer are too simple and are unhelpful to the client. You ask about strategy - that implies some thought. Unfortunately many have knee jerked on the back of uninformed media opinion. Our approach has been to talk through options with clients and arrive at a strategy that they feel comfortable with. This includes accurate critical yield calculation - as opposed to the yields calculated by most providers - and quantifying the risks and costs of delay. The greatest area of discussion has probably been the impact of inflation. There is concern that inflation will rise and yet most clients are keen to get the highest income in early retirement when they have the health to enjoy it. The drop in income for any form of escalation is too steep for most clients to contemplate.
Away from pensions clients have expressed much concern about the lack of interest available on accounts and the impact that has on savings but are too risk averse to move to asset backed investment. For most a do nothing strategy has been adopted.

Peter Carter is head of product marketing at MetLife UK
Green shoots might be bursting out all over the economy and stock markets around the world may be racing away again but that does not mean that it is back to normal for retirement planning.
Research for Dr Ros Altmann's report Planning for Retirement: You're On Your Own, sponsored by MetLife, showed nearly a third of people who are five years or less from retirement were either unhappy with their pension planning or feel they wasted their money. Around 54% of them believe their pension will fall short of expectations.
That shows the scale of the challenge and inevitably people are having to change their retirement plans. People planning to buy an annuity are likely to have to defer until their funds recover while those who are starting drawdown will have to take a lower income than they otherwise would.
Those who are already in drawdown have to consider cutting their income in order to preserve their capital.
Some are not affected - those who have already bought an annuity and of course those who have bought unit-linked guarantee plans. They have an absolute guarantee their income will not fall and the potential to lock-in gains.

Geoffrey J Cooban is vice president of CitiQuilter
The on-going economic turbulence and subsequent stockmarket reaction have presented some difficult decisions for those planning for retirement. Some investors have had to adapt their retirement planning strategies as retirement horizons and individual risk appetites have changed.
Those whose retirement is a decade or more away can afford to maintain a balance between equities and more secure asset classes. Indeed, some individuals with an above average appetite for risk have viewed the current market conditions as an opportunity and have been adding funds into equities utilising a pound cost-averaging strategy.
Those with less than five years until retirement are in a more vulnerable position and have needed to adapt their retirement strategies with some urgency to protect the value of their retirement fund. In many cases, the move away from equities and towards the more defensive asset classes, such as government gilts, corporate bonds and absolute return funds, that are naturally seen at this stage of retirement planning, have been accelerated.
Those with neither the luxury of a long investment horizon nor the urgency of imminent retirement have trimmed their equity exposure, particularly to the more economically sensitive areas such as emerging markets and commodities.
With the economic storm showing signs of easing and world stockmarkets reviving rapidly, retirement strategies will need to be reassessed regularly.



Andrew Gadd is head of research at the Lighthouse Group
I recently saw details of a survey by Aon Consulting which found that 18% of workers have increased the amount they pay into their defined contribution pension compared to last year despite the ongoing recession. At the same time the survey found that just 5% of defined contribution (DC) scheme members had decreased their payments since last year. Aon concluded that while many employers are cutting back their pension provision, a significant number of workers are picking up this shortfall by increasing personal payments. This is positive news but there is still a large percentage of the population who are not making adequate provision for their retirement and therefore more needs to be done to encourage these individuals to do so and Mr Darling needs to stop tinkering with the rules. In terms of investment strategies I firmly believe this is best done on a case by case basis with the assistance of an independent financial adviser with progress and options being reviewed annually.

Steve Lowe is marketing director at Living Time
What has struck me the most about the current crisis has been the correlation in performance of major asset classes. Equity and property values have crashed and returns from cash and fixed interest have dwindled. The upshot of this for those approaching or in retirement is that they are less likely to trust traditional asset allocation models to control investment risk. Clients and their IFAs are now looking for alternatives.
One recent development in the retirement income market has been the fixed term annuity. These annuities offer guaranteed income for the term of the product (up to age 75) and a guaranteed maturity amount, without any exposure to investment risk. Valuable death benefits can also be included by way of a lump sum or guaranteed income to spouse.
Such annuities are ideal for those retiring now whose appetite for drawdown has been dampened by recent volatility but are reluctant to surrender their funds to life offices by purchasing a lifetime annuity. Retired clients who have become disillusioned with their existing drawdown strategy can also transfer into these annuities to guarantee future outcomes while retaining the USP death benefit options of their original plan.
The correlation in performance across traditional asset classes has also seen IFAs increasingly advising their SIPP and SSAS clients to invest in the Living Time Trustee Investment Plan. This offers the same guarantees as the fixed term annuity product and is an alternative to structured products and derivatives to combat correlation and volatility."



Carl Melvin is managing director at Affluent Financial Planning
The credit crunch, the behaviour of financial markets and the Governments reaction to the economic turbulence have been very scary for investors, particularly those planning for retirement. They have had to rethink their strategies in light of the new economic realities, in particular factors such as increasing longevity, low annuity rates, low interest rates and the possibility of ‘quantitative easing' driving future inflation.
Investors have been turning to professional advice to make a number of changes including re-evaluating their risk tolerance to ensure the strategy continues to match their requirements, diversifying risk via asset allocation and phasing investment purchases to reduce capital risk. Finally, there has been more interest in buying index-linked securities to combat future inflation and reduce credit risk.

Martin Palmer is head of corporate pensions marketing at Friends Provident
There is so much conflicting news out there surrounding what employees are doing or should be doing with regard to their retirement planning making it difficult to know what the real trends are. Looking at pensions savings, for example, some research suggests that one in five employees have actually increased their pension contributions in the last year - pretty much contrary to what the majority of commentators had expected.
On the other hand, our own research shows that more than half (58%) of UK adults don't even know how to set up a private pension.
So in reality, the changes we tend to see to retirement planning strategies are driven by employers, and over the last few months there have been a lot of changes. Some have taken a payment holiday, reduced pensions contributions or have suspended contributions altogether. However the majority continue to see the benefit of contributing to their employees retirement. It is crucial that employees take time to understand and value what is being paid in by their employer on their behalf.
It is also important that people expect the unexpected and understand their financial situation so they can make informed choices when planning their retirement.



Bob Perkins is technical manager at Origen
Economic factors have undoubtedly affected the timing of "retirement" for many people and in terms of wider planning the attack on higher rate tax relief has also caused consternation. Even though the numbers of people who are directly affected (according to Government) may be low, the overall confidence that people have in pension plans as a savings vehicle is bound to have been shaken.
The new anti-forestalling measures are also affecting individuals who are facing redundancy. Many who are in receipt of sizeable severance settlements are finding that they are falling foul of the "relevant income" in the 2009/2010 tax year and that higher rate relief on their pension contributions for the rest of this tax year and the next might be might be affected.
For high income earners, "bonus sacrifices" had become quite common place and the concept of "in specie" transfers of share options was growing in awareness. These are now strategies that may need to be revisited and new ways of attracting tax relief, without the constraints of a pension wrapper may need to be considered. Through all of this, however, it should be noted that for those affected though they may lose higher rate relief, they will still receive relief at the standard rate and the other tax advantages associated with Registered Pension Schemes will continue to apply.
Though economic confidence seems to be growing and stock markets have recovered slightly, there is still a good deal of apprehension about the future. Consequently, individuals are postponing important decisions, seeking a measure of security in their current positions and "value for money".



Paul Smith is a chartered financial planner at Perspective Financial Management
There is no doubt that clients have reassessed, and as necessary, changed their retirement strategies due to the current economic climate.
Of course, the further you are away from retirement, the greater flexibility you have. Those making regular contributions to pension plans have seen recent volatility as an investment opportunity; unfortunately those clients with a shorter term to retirement haven't. Individuals approaching retirement, who have not been fully invested in cash or protected funds, have had to consider postponing retirement until more favourable conditions return or accepting lower benefits.
The adage of avoiding the 'eggs in one basket' scenario still remains pertinent. However, recently we've seen volatile returns from all the main asset classes. Historically sound financial advice has been based upon investing in asset classes with low correlations; if one investment delivers poor returns then the other should be performing well.
It is essential that all clients, no matter what their investment time-frame, receive regular reviews to ensure their investment strategies remain consistent with their prevailing circumstances, attitude to risk and general economic conditions. This is not a new concept to advisers who have sought to build long-term relationships with their clients, but may be to those who still operate on a transactional basis.


Simon Stannard is senior account manager within Courtiers' Private Client Division
Throughout the economic downturn, clients have understandably been concerned about whether the retirement planning they have in place is going to enable them to achieve their retirement objectives, but we've started to witness a swing in opinion.
In October 2008, one of my clients decided that the heat was getting too much and that she wanted to lock in an income by using her SIPP fund to buy an annuity. Once done, this gave her the peace of mind to leave her ISA and a discretionary managed portfolio in place with the long-term goal of providing some inflation proofing through retirement (she couldn't face the reduction in initial income inherent with taking an escalating annuity).
By May 2009 though, two retired ex-business partners decided that the time was right to increase their exposure to equities within their SIPP funds. They had both held similar cautious strategies since inception of the plans back in 2002, and realised that with equity prices at such attractive levels, they were unlikely to have another buying opportunity like this in their lifetimes.
I believe we can all breathe a sigh of relief when clients start regaining their confidence.

Andrew Tully is senior pensions policy manager at Standard Life
Recent economic events may have shaken confidence in pensions. And it can be a shock for people receiving their annual benefit statement to see that the value of their retirement nest-egg has fallen. But it is important that we remind people that pensions are a long-term investment.

Given the current public finances and the fact that people are living longer than ever before, if people rely on the state in the hope or belief that the Government will bail them out, they will either have to survive on a basic income throughout their later life or simply face the music and defer retirement until much later.

In the midst of a recession it will not be easy to get this message across as people may have to reduce or stop saving to meet the rising expenses of day-to-day living. But recent Standard Life shows that only 14% of people had stopped or cut back on payments to their pension or other long term savings scheme. While 10% have started or increased payments.

This willingness to save in hard times reflects behaviour patterns in previous recessions as people want to ensure they have personal savings to fall back on in future.

Bill Vasilieff is chief executive officer at Novia
In talking to advisers who use our wrap platform it seems the biggest change has been in the reduced appetite for risk generally. Although 30% of the funds we administer are held directly in a pension wrapper we suspect considerably more is being held for retirement planning overall. As a result we have witnessed a significant move towards lower risk investments and in particular deposit accounts and cash holdings.
One of the consequences of this move is that advisers have requested a much broader range of cash assets. Additionally, during the tough times we have seen pressure on providing value for money within portfolio provision. This has meant a growth in the use of passively managed funds which can provide a broad coverage of indices and sectors across virtually all asset classes.
I also believe that this trend, whilst heightened by the current economic conditions, is not an isolated blip. As the baby boomer generation rapidly approach retirement, much more focus will be required on managing portfolios more cautiously than is generally the case when investing for the long term.

Adam Wrench is product development manager at London & Colonial
The "at-retirement" market has developed in a number of ways for the overall benefit of the consumer. There are a number of issues that recent product developments have sought to address especially given the current economic climate. These can be surmised as giving the consumers' the ability to control timing, choice and ability to change their mind even post annuitisation.
The timing of cashing in investments from an accumulated pension fund to purchasing an annuity could be inappropriate given the current market conditions. Some investment-linked annuities allow the client to "transfer in specie" their pension assets to the life office thus removing the timing risk of disinvesting when market conditions are less favourable. Investment linked annuities allow full self investment from the whole of the market rather than just a selection of mutual funds. The consumer remains in control of choosing the investments and varying the annuity income between prescribed limits from year to year if required. Some flexible annuities allow the client to transfer to an alternative annuity provider at anytime - i.e. they are not tied in.
These products are in addition to the traditional offerings of conventional annuities and whatever approach taken will require an increasingly educated adviser who will need to posses a sophisticated understanding of an ever evolving "at-retirement" market.