The state pension is part of any retirement plan. For Kevin Forbes’ clients, however, it has become more important than ever.
As principal and chartered financial planner at Bournemouth-based Strategic Solutions, Forbes is used to working with clients who came of age in the era of Thatcherism and yuppies. This year, because of the pandemic, their perspectives have changed.
‘A lot of them are rethinking their lives,’ Forbes says.
‘They’re thinking: “You know what, I don’t want to be working for another 12 years to pick up a state pension. I’m going to take a lower income and retire earlier.” Time is more important than money now. That’s been a noticeable change in the last six months.’
For a generation raised on the principle that success comes as a result of hard work, this is a significant psychological shift, says Forbes.
This shift places more pressure on the state pension at a time when state pension policy is once again up for debate due to the pandemic-induced pressure on the government’s finances.
‘A lot of these people were brought up in the late 1970s and 1980s, with yuppie Thatcherism and the work-hard-at-all-times attitude, where the most important thing was to achieve,’ he says.
‘Now they’re longing for simpler things rather than assets, prizes and wealth, which is nice really.’
Filling the gap
Forbes has had quite a few conversations to this effect with clients in recent months. In some cases, clients have made the decision to retire before even consulting him or their cashflow models.
‘Everybody’s different but the consensus seems to be that, rather than have millions of pounds in your pension pots and investments at 67, it’s better to live off £20,000 a year and lead a simpler life,’ he says.
‘We’ve had a few messages from clients saying: “I’m handing in my notice on this day and I’m going to start drawing on my pension on this day.” Their cashflow modelling gives them confidence, but I hope it doesn’t give them too much confidence. It’s only modelling after all. I sometimes think: “Can we have a little chat before you jack it in?” But most of them say they would rather have less money and more time than more money and less time.’
Advisers have to get on the front foot with these clients, whose demand for a simpler life proves just how important it is to do an initial financial plan well, with proper follow-ups and reviews.
‘We’re very close to our clients, so we’ve had lots of conversations about when they should retire, but in the end they’ve brought it forward by a couple of years. It’s never completely out of the blue because we have plenty of meetings with them,’ says Forbes.
Shoring up the coffers
What does Forbes make of the current pressure on the government’s finances given that his clients are reliant on a state pension, the age of which is creeping ever higher?
In October the state pension age rose to 66 for men and women, and future rises are on the cards. The debate around the triple lock, which means payments increase every year by whichever is the higher of wages, inflation or 2.5%, has been reignited, too, after the chancellor stood by the policy when some thought it would be the first spending commitment to go. Even Boris Johnson’s predecessor as prime minister, Theresa May, had committed to downgrading its valuable guarantee to make it more affordable.
But Forbes argues a good financial plan already has political change priced in, and a good financial planner keeps abreast of their clients’ state pension age, too.
‘I do think the government will push the state pension age back even further,’ says Forbes.
‘Most of my clients know they will be 67 or 68 when they get their state pension because they’ve been told that. We get state pension forecasts at least annually for all our clients, so they know the days and the amounts. That’s a known known, so to speak.’
— to citywire.co.uk