This article is the latest part of the FT’s Financial Literacy and Inclusion Campaign
Could you ever see yourself hiring a retirement coach?
When I think of this term, I picture someone who is the opposite of a personal trainer — though there might be a bit of gentle tai chi as they school you into reaching for the pipe, slippers and TV remote.
I envisage they would gently coax you away from your workstation, press a cruise brochure into your hand and usher you off into a world of sunsets, puzzle books and watching Bargain Hunt.
This is, of course, a pipe dream. A couple of different studies this week have shown that Brits of a certain age are more likely to be panicking about retirement than actively preparing for it.
Almost one in three Brits don’t have a clear understanding of the options available to them in retirement, according to the Future of Global Retirement report which landed on my desk with a depressing thud this week.
Despite (or perhaps because of) our limited understanding of retirement funding compared to our counterparts in the US, Australia and South Africa, Brits are the keenest to manage their retirement savings entirely single-handedly, with 38 per cent of people saying they favoured this approach.
“As people get closer to retirement, they do tend to realise they need more help,” says Eve Read, senior director at Smart, the pensions technology platform which carried out the study.
Interestingly, retirement savers in all four nations ranked “friends and family” as a more useful source of information than their own pension providers (the equivalent of a wake-up call for the industry if ever I heard one).
A particular challenge for British workers is the fragmented nature of any retirement savings we have managed to muster. While the long-awaited pensions dashboard project will improve this, it’s by no means a silver bullet. Many are simply unaware of the huge investment risks we have to manage compared with previous generations.
Final salary schemes provided a regular income guaranteed to last for the whole of a person’s retirement with the added luxury of never having to make any investment decisions.
As these gold-plated pensions become rarer, workers in the private sector are moving into a world of financial decision making that the average person is simply not prepared for.
“People will have to make choices, but the question is whether they’re qualified to make an informed choice,” says Read.
So who should educate them — and how?
Read has noticed the steady rise of retirement coaching, which is far removed from how I imagined it at the start of this column. Its chief purpose is to get people thinking about building a retirement plan by educating them about their options — ideally while they’ve still got a fair few years of work ahead of them.
Coaching is very much guidance rather than advice. You could hire your own private coach (a personal retirement trainer?) but increasingly, more enlightened employers provide this as an employee benefit.
This has to be handled sensitively. If your HR department suggested attending a retirement planning course, you might view this as a one-way ticket to the knacker’s yard. But judging by the research, many might welcome the chance to have someone hold their hand through the process.
I’ve been told about one company that ran a two-day course for groups of employees over 50. They were encouraged to bring along their spouse so they could explore their retirement options together, which I thought was excellent. The sessions stopped short of tailored advice, but served as a call to arms for couples to dig out their paperwork and start working out what potential strands of retirement income they could weave together.
In the UK, this is an increasingly complex calculation. Those approaching retirement might expect to receive some income from a defined benefit pension, plus have various DC pots to manage (which may or may not be “lifestyled” into gilts as they age). If they’re lucky, they will also have stocks and shares Isas, cash savings and potentially income from buy-to-let property.
The challenge is pulling all of this together into a coherent plan, working out a “retirement sequence” of what you might take when, and from where. Coaching may help give you a better idea of what’s possible, but the tax complexity of pensions — particularly when benefits are crystallised — is something for which even I would turn to a professional adviser for help.
Firms offering coaching services are geared towards explaining the basics, familiarising the unwary with information about tax-free lump sums, how annuities work and what drawdown involves.
Some teach basic cash flow planning techniques to shed light on what kind of lifestyle you could sustain based on your current retirement projection — and how this could improve if you added to your pot or kept working for longer.
Nearly half of Brits polled by Smart said they saw retirement as a gradual transition, rather than a one-off event. Given the challenge of the gender pensions gap, I’m not surprised this view was slightly more prevalent among women.
Another useful exercise is doing a state pension forecast. If you or your spouse have any “missing years”, do consider filling any gaps dating back to 2006 before the new tax year in April, after which you can only go back six years.
We may have pension pots from previous jobs dotted around, but providers need to take some collective responsibility and work with employers to find a way of scaling up workplace coaching. If it becomes more widespread, it would be a fantastically useful primer for the over 50s, helping them squeeze the most out of their free session with the government’s PensionWise service, or informing their search for a qualified advice professional (assuming they can afford this).
However, I fear that for a growing cohort of UK workers, there will be precious little in the way of pension assets to be eked out as the cost of living crisis makes it harder to save.
Being able to afford day-to-day living costs ranked as the top retirement worry in the Smart survey. A separate study this week from Abrdn found that almost two thirds of over 55s had seen a drop in disposable income, and more than half haven’t been able to save at all or as much as they had previously. Over a third of those surveyed said they were spending their savings to beat the cost of living crisis.
Add all this together, and the result will be more and more “Cafters” — folks who Can’t Afford To Retire. This is a problem that today’s policymakers seem blissfully untroubled by (they must hope they can leave it to whoever takes over after they retire). But this is storing up trouble for future taxpayers who will inevitably have to make up the shortfall.
If you’re a Cafter, resigned to working for many more years, maybe retraining as a retirement coach could be an option? I predict there will be a booming market.