As a long-standing financial services firm, authorised to provide advice in both the UK and Australia, we are keenly aware of financial planning issues in both countries and steps regulators take with a view to improving retirement outcomes.
For example, one such step taken in Australia was the introduction of the Retirement Income Covenant (RIC) in 2022.
This puts some onus on super fund providers to identify the retirement needs of fund members and develop plans to ensure those needs are met.
It reflected concerns regulators have had that there is often too much focus on the accumulation process by funds and investment companies alike, and not enough attention paid to how and why retirement assets are drawn from super funds.
Some commentators have suggested something similar is required in the UK.
Read on to find out why, in our view, there is no better alternative to expert advice. You’ll also discover why it’s so important to consider your retirement holistically with your accrued pension fund as just part of a wider retirement income strategy.
The Retirement Income Covenant reflects concerns over a lack of retirement flexibility
In the UK, concerns over the lack of choice and flexibility post-retirement were at least partially addressed by the Pension Freedoms legislation introduced in 2015.
As the name suggests, this gave a remarkable level of freedom to anyone drawing from their pension fund.
In Australia, however, the proponents of the RIC pointed out that a lack of innovation on the decumulation side of super funds has resulted in members being failed and making unwise decisions in retirement.
They drew a contrast between the efforts made by investment fund managers to encourage you to invest your super in their funds, and the lack of similar efforts around investing your money once you have retired and are drawing from your fund.
There was also concern around the lack of flexible income options made available by super providers, and a similar lack of any serious analysis of how long your fund will need to last.
This latter point has also caused concern among some industry analysts in the UK, where Pension Freedoms may have encouraged some people to access their fund prior to actually retiring or draw too much from their fund immediately after stopping working.
There are key issues that will affect your retirement income strategy
Generic advice fails to take into account that all retirees are unique, and, as a result, everyone will require a bespoke retirement income plan set up to fulfil their personal needs.
Having said that, it is possible to make some broad generalisations that, as you approach retirement, you ought to be looking to factor into your decision-making.
For example, it’s likely that your spending requirements will fall over time. You could well be at your most active during the period immediately after you stop working, so your income plan ought to reflect this.
Indeed, you may even find that your outgoings may not actually go down in that time compared to when you were working.
It’s sensible to include other important issues in your income strategy as well, such as:
- How inflation could affect the value of your fund and the income you require
- Having the right investment strategy
- How long your fund will need to last
- Your own spending habits.
You’ll need to ensure you have at least enough income to provide you with an ongoing safety net to cover the cost of housing, and basic bills. You can then build on this income and tailor your strategy to meet your aspirations.
Your retirement income solution also needs to be flexible because it’s likely that your circumstances may change during retirement, maybe in ways that you might not have previously considered.
Bespoke plans are better than any attempted “one size fits all” solution – however well meant.
It’s important to consider all your accrued assets in your retirement planning
Importantly, the ideal retirement solution should not just focus on your retirement fund but also consider your other assets.
These could include savings, investments, and the disposal of other assets such as a business, or property portfolio.
We believe a retirement framework should enable people to view their total assets, including their home, and facilitate the drawing of income from multiple different sources.
Couples, too, should be able to view and plan their household finances together, rather than relying on products and analysis tailored for individuals in isolation.
You need to ensure you have an effective and robust investment strategy, because maintaining growth on your assets after retirement is just as important as during the time before.
Financial advice can help you enjoy the retirement you’ve looked forward to
All the issues you’ve read about here will hopefully have demonstrated to you the importance of financial advice, both when you’re putting your retirement plan together, and also on an ongoing basis once you have retired.
The issues raised are part and parcel of the advice process, from putting your original plan together, through your accumulation phase, then into retirement with a robust and tax-efficient income strategy.
Well-meant initiatives such as the RIC may well be handy for DIY investors and planners. But, they can’t beat hands-on advice and a bespoke retirement plan, regularly reviewed each year to confirm you’re still on track.
Having an adviser working with you gives you the best possible chance of enjoying the retirement you have worked hard and saved for. Equally, it can help you avoid costly mistakes that are often irreversible, and which could easily affect your wealth.
Get in touch
If you would like to talk about your own retirement plans, please get in touch with us.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.
