During times of financial stress, it’s very easy for people to consider long-term savings, such as pension contributions, as optional.
As any adviser will know, the consequences of missing payments for long-term savings can be significant – it can result in a loss of tax benefits and ultimately reduce a person’s pension pot, which can have a knock-on effect in retirement.
Of course, sometimes reducing or stopping payments cannot be helped, but it’s important for advisers to consider how they can support people to commit to long term-savings when short-term saving is harder than ever.
The total value of people’s pensions plateau when they reach the age of 50
The bottom line is that advisers have a crucial role when financially challenging times arise, because advice becomes more important than ever.
And while it isn’t about telling people what they must do – because, of course, individuals must always have the autonomy to decide for themselves – advisers must provide clients with clear information on all outcomes of their decisions. This way, they have all the facts to hand and the knowledge to weigh the risks and act accordingly.
To do this, regular communication and the use of technology are essential. In many instances, the best way is to use technology to show clients the impact of missed savings on their pension pot and how this could affect their income in retirement.
This makes the financial realities more immediate, tangible and compelling. Some of the best tools available to advisers are cashflow planning tools, such as those provided by FE CashCalc and FinCalc, to name just two examples.
Clients may still decide to reduce long-term savings, but at least they will do so with full knowledge of the effects
Once clients see the actual figures involved and understand just how much they will potentially miss out on, many will make decisions that benefit them in the long term, even if this requires sacrifices in the short term. Again, this is something an adviser can help navigate, supporting them in understanding where may be the easiest place to make shorter-term cuts.
Clients may still decide to reduce long-term savings, but at least they will do so with full knowledge of the effects.
Analysing data from our Wealth platform, we can see that, on average, the total value of people’s pensions plateau when they reach the age of 50, while the average Isa value continues to rise until it reaches its maximum when people are in their 70s.
The average pensions savings for various age groups in the data set are as follows:
- Ages 20-29 have £21,995
- Ages 30-39 have £45,520
- Ages 40-49 have £105,115
- Ages 50-59 have £223,881
- Ages 60-69 have £223,441
- Ages 70-79 have £175,421
The average Isas are as follows:
- Ages 20-29 have £25,373
- Ages 30-39 have £26,674
- Ages 40-49 have £59,212
- Ages 50-59 have £72,906
- Ages 60-69 have £91,960
- Ages 70-79 have £109,515
It will be interesting to see the data next year, so we can truly understand how these short-term circumstances have affected people’s long-term saving plans.
In the meantime, advisers’ main priority should be helping to reassure and advise clients on all outcomes so they have the power to make fully informed decisions on their savings.
James Tucker is chief executive of Twenty7tec
