Diversification is also vital at tax wrapper level, more sophisticated strategies to blend pensions, Isas, investment accounts, and bonds are required to deliver tax-efficient withdrawal strategies.
Having different tax wrappers allow clients to be agile as access and tax allowances regularly change over the years.
For example, the minimum age for drawing from private pensions is increasing to 57, and capital gains tax exemption has been reduced by 50 per cent. One size no longer fits all, and a wide blend of products with various tax treatments is now crucial.
Staying on top of this is key, and clients must have a long-term plan or work alongside an adviser for guidance. Not engaging won’t be an option.
As part of this, advisers must continue to consider annuities for fixed costs or cautious clients.
The core plan for retirement, however, should be underpinned by a holistic lifetime financial model (cash flow) that will help plan for different anticipated scenarios, including poorer than expected investment performance or, for example, a need to spend capital on care or other one-off costs.
This type of resilient planning can help mitigate the impact that investment risk can have on retirement plans.
Through active reviews of risk appetite with an adviser, clients can manage the level of risk they take in their portfolio as they approach retirement and the need to draw on capital.
Many investment firms manage specific portfolios to help clients mitigate the impact of sequencing risk when drawing on their wealth.
Retirement has changed and will continue to evolve. Fortunately, there are options available that, if used properly, will allow for lots of flexibility, tax efficiency, and the building of a strategy that can help clients reach their goals and make the most out of their extended retirement.
Saisha Penny is private clients manager and Stewart Sanderson is head of private clients at Brooks Macdonald
