A new report about pensions and housing wealth thinking, or lack of it, has got me considering how we plan for later life financial challenges and the importance of fully comprehensive holistic Financial Planning.
A new paper from the Society of Pension Professionals, which has produced some valuable reports lately, has shone a light on what it calls a ‘critical structural mismatch’ in the UK economy.
The SPP believes millions are at risk of a retirement shortfall because the UK has failed to join up housing and pension policy. They have a point.
The paper estimates that UK retirees currently hold an estimated £3.84trn in housing wealth, yet face an aggregate annual retirement income deficit exceeding £48bn. House rich and pension poor, in many cases, but how to resolve this?
The SPP report points out that many current retirement planning models rely on the outdated assumption that most individuals will retire mortgage-free. In fact, because of the soaring cost of buying a house there is a new generation of lifelong renters, who require an estimated £269,000 more in pension savings to cover rental costs.
We’ve all assumed that the majority of retirees will be homeowners but that’s no longer a certainty, in fact the landscape is changing rapidly.
The SPP says that fragmented advice, separate regulatory regimes and tax barriers, like stamp duty, prevent people from making holistic decisions about their wealth. I suspect they are right.
This is where properly done, holistic Financial Planning comes in. Planners are very good at taking into account their clients' whole financial picture before making recommendations. A full client fact find and deep conversations about money are the root of good Financial Planning and an essential initial stage.
Short term quick fixes, such as pension consolidation and transfers, are probably not the answer for many and can in some cases be risky as well as no long term solution to the challenges of funding retirement. Simply transferring pensions from A to B does not create any answers.
The SPP calls for more unified guidance, an update to retirement metrics and a much more rounded approach. A good example of the problems coming down the line relates to equity releases, which remains popular despite the misgivings of many Financial Planners. But what if there is no property to tap for capital and income? Equity release is no good for renters.
Taking into account a customer’s entire wealth, including property, pensions and investments, is common sense when building long term Financial Planning strategies but I suspect too many people opt for simple and far from comprehensive solutions, ultimately to their long term detriment.
The current Pensions Commission should take a look at the SPP report and factor it into their thinking before it delivers its report next year.
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Kevin O’Donnell is editor of Financial Planning Today and a journalist with 40 years of experience in finance, business and daily news. This topical comment appears most weeks, usually on Fridays but occasionally other days. Email: