“This has the benefit of potentially continuing pension contributions as well as continuing with some salary to help to support in to retirement. We also have to discuss the lifestyle that clients are looking for in retirement and whether they could look to scale their spending back in retirement.”
This, Spencer says, is a highly sensitive topic for many clients and therefore advisers need to have the right approach, rapport and empathy with the clients.
Another topic of discussion advisers at Evelyn Partners have been having with clients is around their state pension and whether it makes financial sense to ensure they have contributed the maximum to their state pension.
M&G's Anderson says she is also hearing that advisers are having more detailed conversations around cash holdings and interest rates.
She adds: “Due to the increase in interest rates more clients are asking if they should hold more money in cash. And of course, cash holdings do have their place, but not all savings receive the headline interest rate.
“Many advisers are reiterating the impact of inflation on different types of holdings and having conversations with clients about their short-term versus long-term needs.”
Another source of income clients could tap into before accessing their pensions, James Murray says, is drawdown from assets such as Isa or general investment accounts.
“Moreover, pensions are free from capital gains tax and inheritance tax, so clients should look to maintain their UK pension assets for as long as physically as possible. This typically also creates a larger 25 per cent pension commencement lump sum tax-free element,” he adds.
The key take-away, from the retirement experts, is that there is no one-size-fits-all as everyone will have different needs and objectives.
Anderson says: “Some people might want to work for longer, maybe by moving to work part time. There’s no longer a cliff edge where we just stop work at 65. Hopefully for many this will also see a continuation of employer contributions to their pension savings.
"Remember the state pension, if you have any gaps in your national insurance record you have the ability to pay voluntary national insurance contributions to fill in the gaps and therefore increase the value of the state pension you will receive.”
If the decision is made for the client to access their savings, there are various things to consider when it comes to income withdrawal, says Anderson, for example:
- Whether or not the client is lucky enough to have savings in different tax wrappers (for example, pension, Isa, bonds or collectives).
- Maximise the client’s annual allowances and exemptions – effectively pay less or no tax on the income they withdraw from these different tax wrappers.
- Consider IHT, if applicable. Pensions mostly sit outside a client’s estate for IHT purposes and most other savings vehicles sit within, although it is always worth checking each for each client.
- Do not forget that pensions can be passed to others after a client dies, and this could be free from tax (depending on the overall situation of the client).
She adds: “Again, the overall position of the client needs to be considered, but I think most advisers would agree on drawing income from your other tax wrappers first and leaving your pension until last.”
