What do we worry about in retirement and how do advisers help?

We are often told to take advice in retirement but we don’t often know what to expect for the money we pay. This has become an important issue for me, because I am due to speak shortly with the National Audit Office as they conduct their review of the FCA’s regulation of those advising steelworkers who chose not just to transfer away from the British Steel Pension Scheme, but also chose to pay ongoing advisory fees in retirement.

I have been reading a long post by my friend Al Rush , explaining to his clients and others connected to him on Facebook, what they might expect from their adviser and why they may have reason to claim they are not getting value for their money.  It is of course easy enough to see how much we pay advisers (thanks to the RDR), but it is a lot harder to assess the value of that money.

I will be commenting on this post and the important issues it raises about how FSCS compensation works (or doesn’t). In the meantime, I’m asking myself whether we really understand what the value of retirement advice actually is.

Five reasons I’d pay for advice.

1. I want to manage my retirement cashflows so I maximise the amount I pay myself, without finding myself short in later life.
2. I want to minimise the amount of tax I and those I love, pay on the money I’ve saved. as it’s paid back
3. I want to ensure that any benefits due to me from the state are fully claimed and not prevented from being paid by the way I get paid from my pot
4. I don’t want to (inadvertently) commit a fraud against the taxman, benefits agency or anyone else.
5. And I want to make sure that whatever I do with my money, it matters in terms of ES and G.

I do not consider the increase in my net worth as a key measure of retirement advice

The problem with this kind of advertisement is that it doesn’t tell me what I’d be worth if I hadn’t had an adviser. Most wealth managers see wealth preservation as an indicator of success, while most people I know are not made happy by wealth but by their capacity to have a fulfilling lifestyle.  My five measures do not focus on wealth but on income, as the one thing I don’t have in retirement – which I had when I was at work – is a regular wage.

Cashflows

The amount I take from my pension pot as a regular income can vary from a return of capital with minimal interest from my bank , to the 8% pa  drawdown that is commonly taken (according to the FCA’s Retirement Income Survey).

I would like advice on the risks of drawing too much or too little but I also want to know how much risk I am taking in the pot (or perhaps I should say “in my portfolio”.) There has be a “golden mean” or sweet spot for me – where I take enough risk to get what I can but not so much risk that I get what I want today and run out of money.

Here the need for advice is ongoing, you cannot “set and go” a strategy around drawdown, our capacity to take risk is not static, we often change as we get older

I would pay good money to be able to outsource this  problem to someone I trusted both as competent and as acting in my best interests. I would pay more to know that there was a system in place that meant that if my adviser left, his or her cashflow strategy for me, continued to be reviewed/

Tax

We have a duty to pay tax, but no duty to overpay tax. Managing my tax affairs as efficiently as I can is no easy matter with such a range of income and capital taxes that my retirement income could be subject to.

I’m worried not just about my tax coding and self-assessment in 2022 but in 2032, 2042 and to some extent I’m worried about the tax burden I could leave my loved ones when I die.

I would pay good money to make sure that I do not get landed with unexpected bills and that my pay-coding in retirement remains as light as possible. I’m interested in tax-free cash but I’m not so blinded by tax exemptions as to want them to prevent me getting a proper income in retirement. So I’d like to know how and when to draw my tax free cash and I’d want to have strategic advice about the shape of my retirement income from my savings and other pensions, so I can avoid paying higher marginal rates of tax.

I can imagine situations in the future where I might like help on capital gains tax. The need for tax advice increases as I get richer , the need for benefits advice increases as I get poorer.

Benefits

I don’t get much by way of state benefits but I recognise that in 7 years or so, I will be getting my state pension. But for most people I know, their state pension , universal and pension credits and other bits and bobs from the state make for a fair portion of my retirement savings

 So an adviser needs to make sure that I’d expect that If I am going to lose any benefits the loss will must be explained  documented and justified.

I’d want my adviser to be finding out whether you could be entitled to any benefits I don’t already claim.

Compliance

Like a lot of people, I am most scared of what I don’t know and I don’t know when I fill out my self-assessment , that  I am always 100% right. For instance I nearly claimed higher rate tax-relief on my pension contributions before being reminded that I sacrifice salary so have already got my relief.

I would pay good money to any adviser who limited my capacity to inadvertently claim reliefs or benefits I was not entitled to.

This may sound trivial but it is not.

Making my money matter

I give money to good causes out of charity. But I don’t want to give up my rights to an income in retirement to improve governance, help society or save the planet. I want my money to matter but not at a cost to my pension.

Or if there is a cost to my pension, I want to know what the cost is and then make an informed choice as to whether to pay it.

I would pay good money to know how my money is managed , what it is costing me and what good it is doing .

Is advice worth it?

Like most luxury items, advice is only worth it if it can be afforded. If the cost of advice is at the expense of pension to a point that the pension would be bigger without advice, then advice is not value for money.

The attraction of advice increases the greater the need for it , tax being an obvious area where it is needed by the wealthy.

There is also a question of self-sufficiency. Many people love DIY and not just for home improvements! Those people who claim that we should all take advice (or guidance) run into the same problems as those who demand we are all vaccinated. But by not taking advice we are unlikely to be doing anyone harm but ourselves.

So I am not an advocate of requiring people to take advice- other than where the capacity of people to get things hugely wrong (such as transferring DB) and making ourselves a burden on others.

So when I speak with the NAO, I will be asking myself , whether those who have bought advice following their decision to transfer out, have got value for their money. There has to be an objective measure for valuing advice and I suggest that advisers would do well to document the value of what they have done, rather than rely on an assumption that advice is always worth it.