The UK’s retirement landscape has changed significantly. Pension reform now provides retirees with broader access to their retirement savings. However, reform has also shifted more post-retirement risk to the individual. This reading list highlights some of the issues at hand.
• “Blended retirement solutions” (subscription required)
Individuals need financial plans that offer income solutions and address key retirement risks. This FT Adviser article highlights a retirement framework development by Milliman and AXA Wealth that help advisers assess their clients’ needs based on a well-known psychological theory. The framework is detailed in a report entitled “Retirement planning: Bespoke retirement solutions are ‘the new black’ in 2015” by Milliman consultants Colette Dunn, Chris Lewis, and Emma Hutchinson.
One model which can be used to determine at-retirement choices in the context of these risks was set out by management consultancy Milliman along with Axa Wealth. It is based on US psychologist Abraham Maslow’s famous ‘Hierarchy of Needs’, which placed people’s innate requirements in order of priority to ensure psychological health. Axa Wealth transposed this hierarchy on to retirement spending ‘priorities’, to differentiate between essential and more discretionary costs.
In the retirement hierarchy, the money set aside to feed oneself, pay for a roof over your head and meet essential bills is defined as ‘essential’. Income to meet these needs would be subject to a very low attitude to risk.
More ‘discretionary’ spending, which could include everything from running a car to holidays, is less set in stone and so open to greater risk. Often objectives here might require significant investment growth to be fully realised.
The more important given needs are considered, the less risk your client will be willing to take. This could result in possibly several layers of risk needing to be met.
A final element is ‘legacy’, or the wealth your client may wish to pass on when they die. This is classified as the most aspirational of the needs and thus subject to the highest risk.
Once ranked, these income requirements can be placed into a framework.
• “Actuaries warn of retirement cash running out”
Many experts believe retirees run a higher risk of depleting their retirement incomes, which is due to pension freedoms. Colette Dunn comments on results from a survey of industry experts at Milliman’s Forum.
• “Calculating pension income”
Advisers need to develop new approaches to help their clients manage new retirement risks. Milliman’s Dunn and Russell Ward discuss solutions that address market risk and inflation risk.
• “A retirement planning model for the new pensions world”
In this article, Dunn and Chris Lewis highlight a retirement framework that advisers can employ to match a retiree’s income needs to specific levels of risk.
• “Reform spells healthy future for advice”
Reform offers advisers and providers an opportunity to innovative solutions that may help participants navigate the new retirement environment. Milliman’s Dunn and Ward provide their perspectives.
• “Blurred lines of retirement saving”
In this article, Dunn highlights important conversations advisers need to have with people at different stages of their retirement planning.