The Accumulator: Values to Vision eschews Sipps and SSASs
Nick Lincoln, director, Values to Vision Financial Planning
Integral to our service for both accumulation and decumulation is a lifetime cashflow forecast.
The cashflow forecast informs us of how much an accumulator needs to be saving to achieve their goals and maintain their desired lifestyle when retirement comes. The cashflow is also part of the investment decision-making process, enabling us to see what rates of return are required and to quickly and easily model different scenarios based on different investment returns, both good and bad.
The process involves looking at all the client’s assets and incomes and helps us broaden our accumulation advice beyond just pensions.
Retirement income and capital can come from a variety of sources, such as pensions, Oeics, ISAs, the sale of a business and rental income. It’s important to consider every available solution and to use those that are the most useful for clients. Pensions are just one way of doing this.
We have an annual planning meeting for clients. They value this greatly: it’s their chance to talk, to open up and gain the peace of mind only lifestyle financial planning can provide.
What's in your wrapper?
We periodically review the whole market to keep abreast of all the retail investment solutions available. However, for the vast majority of clients eligible for our service, we find our range of five passive model portfolios offers controllable exposure to the three main asset classes: equities, fixed interest and property. Fixed interest is there purely to dampen volatility. To boost equity returns within acceptable risk parameters, the portfolios have a bias toward value and small-cap stocks. Portfolios are rebalanced annually or when new monies are invested.
Retirement planning tips
1. Find out how much the client’s desired retirement will cost.
2. Don’t be wedded just to pensions.
3. Educate clients about the riskiest long-term asset class: cash.
4. Keep abreast of complex and changing retirement planning legislation.
5. Avoid ‘solutions’ you don’t understand.
My favourite client case
An 80-year-old client who is still working came to us at the age of 74. In that year we consolidated his existing pension arrangements, made a very large employer pension contribution from his own company, approved by his local tax inspector and fully offset against company profits. This gave him a pension fund that will greatly help him when and if he decides to retire. The flexibility to be able to stay in drawdown post-75 was and is fantastic for this particular individual. He doesn’t need his pension income yet and now the law allows him to defer it until he does.
The decumulation phase is more involved whereas accumulation was about telling the client they need to save a certain amount of money over a certain amount of time to be able to retire at a certain date without fear of running out of money. Decumulation is more complex because of the range of possible ways to generate retirement income and the finality of some of them: you can’t unwind an annuity!