We always find that when we ask a client what he or she is likely to get from their pension, they have no idea. People can tell you what they would like, but whether they have enough or not is another thing…until now.
The Pensions Dashboard is a government initiative which has started recently, albeit it is not yet working. It is an attempt to show people what they might get from all of their pensions; primarily personal pensions, but it also includes the State pension.
What we do for our clients now, that is working, is our Pensions Guesstimate:
The above would be the situation where a client has a personal pension and is contributing to it. If they weren’t, it is easy enough to remove that line, with other values recalculating to show an accurate likely outcome.
This example shows someone taking out their tax free cash at age 55, which is the earliest it can be taken. It can however be taken out at any time thereafter; either as a lump sum or in regular withdrawals.
We have built in withdrawals thereafter at 6% of the value of the pot from age 65 onwards, which is certainly not unreasonable. In the age of Pensions Freedoms, by and large this can be literally anything though.
In terms of growth, the Financial Conduct Authority expects us to be pessimistic so as not to get someone’s hopes up. We therefore use 3% growth if the client is a low-risk investor, 5% if they are a middle-risk investor and 7% if they are a high-risk investor.
Finally, under pension income, this example show the person retiring at age 65, although with pensions freedoms, anyone can retire from age 55. The State pension might be paid at age 65 with the standard amount being £8,100 per annum. We do ask clients to get their DWP forecast, which tells them how much they will get and when they can get it.
The end result, as I am sure you will agree, is a very simplified guess on what a person might expect at retirement. This then allows them to do their planning, potentially with plenty of time left to improve things. The whole purpose of this is simplification, although there are a number of factors where advisers need to keep watching. Pensions Guesstimates are specific to each individual, and if you have any clients who would like one done, please feel free to ask us.
For any enquiries or just an initial chat, contact Andrew Singleton on 0345 241 1808 or e-mail us at firstname.lastname@example.org.
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