MARKETS

Reminding clients of the benefits of retirement saving

Tony Stenning |04-Nov-2016

Saving for retirement is one of the top financial priorities for Britons, but many savers may need more money than they think they do.

Imagine a world – even in today’s low-growth environment – in which your clients were offered guaranteed, double-digit growth of their savings.

Now, imagine that this growth – available only to long-term savers – was instantaneous in uplift. For example, £100 instantly grew to £125 or even £166.

In this world, some savers could also enjoy a further boost to that growth – a ‘matching’ amount to their original £100 investment.

Of course, we’re talking about pension contributions here. The uplift to an individual’s contribution when they combine the tax reliefs from their own pension contributions with those offered by many employers through workplace pensions schemes.

Generous tax reliefs

They are the best tax reliefs available and their benefits are worth reiterating to clients - all the more so because they chime so closely with most people's financial goals.

Research from our Global Investor Pulse* survey outlines ‘saving money’ and ‘saving/investing to ensure I can live comfortably in retirement’ as the two top financial priorities for Britons.

What people are less clear about is the amount they need to save to ensure they can have that comfortable retirement.

Our research also showed that, on average, millennials estimate that a retirement pot of £167,000 would generate an income of £27,000 a year. But to retire aged 65, our CoRI retirement calculator estimates that you would need £29.87 saved today as at 1 November 2016 to generate each pound of annual retirement income. The figures come from BlackRock’s Cost of Retirement Income (CoRI) tool, an interactive online system to help visualise and communicate retirement choices more effectively to your clients.

Rising longevity adds to the need to save more over a longer period than most people think is necessary. Even if people in the 25-40 age group may not be quite aware of their extended longevity, the government is and is acting accordingly, with the state pension age set to gradually rise.

Moving forward, further rises may need to be taken by the government to help protect the country’s finances.

Rising longevity adds to the need to save more over a longer period than most people think is necessary

Period of calm

The good news is that we may be in for a period of calm as far as pensions are concerned.

Retirement is but one of a raft of concerns for new Chancellor Phillip Hammond as he attempts to rebalance the economy in the wake of the Brexit vote. We do not expect too many pensions-related changes to be announced when he stands at the despatch box during his first autumn statement next month – it’s fair to stay he has bigger problems.

Given the scale of changes to the retirement savings rules in recent years – from lifetime limits changes to the dramatic pensions freedoms announced by his predecessor George Osborne – that may be no bad thing for advisers and investors who understandably prefer stability to permanent revolution.

Therefore, we believe it’s a good time to underline and repeat the many benefits of saving for retirement and painting a realistic picture of what people need to save for a secure financial future.

In other words, giving people sound financial advice.

Tony Stenning
Managing Director, Head of Retirement for EMEA
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*Global Investor Pulse survey conducted online from July to September 2015. All respondents main or joint financial decision makers within household. Nationality representative quotas set on age, gender and region across the UK. Sample: 4000 UK.

CoRI will be at the heart of all our retirement tools and illustrations; we believe it will help make important retirement choices easier to understand, so that you and your clients can make informed decisions together. Look out for exciting new tools from us next year which build on CoRI.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of November 2016 and may change as subsequent conditions vary.

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