Last week was financial planning week, focusing on current trends in financial planning in the UK and the advantages of thinking carefully about your finances and future.
One of a series of surveys during the week, carried out by the Institute of Financial Planning (IFP), showed just 22 per cent of people knew how much they had to save and for how long to obtain the standard of living in retirement they aspire to.
Stressing the importance of knowing what and how to save for retirement, John Lawson, head of pensions policy at Standard Life said: “Current estimates are that the average 35-year-old will need to save 15% of their income each year if they want to make sure they are financially secure in old age.
“That’s a substantial sum, and the longer they put off saving, the more they will need to save each month.”
Suitable for all ages
If that IFP survey suggested young people faced uncertainty looking ahead to retirement, it is not only those in their 20s feeling the pressures of demographic and social changes, such as longer life expectancy.
Chief executive of the IFP Nick Cann said: “It’s a massive area for people irrespective of where their starting base is.
“People getting near to retirement, the sandwich generation, who have got parents who might be needing support and potentially having to support children, who even if they can afford to go to university, may come home afterwards.”
Cann said when these people felt they were able to retire they would be worrying about planning for the people they potentially need to support ‘without losing control of their own lives’.
At the other end of the scale, Cann says people in their 20s very often had no interest at all in financial planning or interest in saving for retirement. There was a real need, he added, to get the message out there about the importance of putting away £50 a month from a young age and the benefits accrued through compound interest on those savings.
It can be useful to seek independent advice from a qualified professional on some of the strategies for planning ahead financially. Being informed about the investment options is also crucial if you are taking on those decisions yourself.
On 22 November, the pensions and investment provider Standard Life and Life Academy – a charity for financial and life planning – published a report claiming consumers were in the ‘eye of a perfect financial storm’ with only 51 per cent of adults actively saving.
The Everyone needs a plan report looks at the repercussions for people of not saving on a case by case basis, saying the ‘penalty for not having a financial plan is not immediately recognised but can have long lasting repercussions.’
It also sets out model plans for different stages of life, looking at aspects of investment such as moving into less risky products in early old age and consider the paying down of debt.
The report is critical of an approach to encouraging savings by a one size fits all model, taking a bottom-up approach to saving and different considerations for various stages of life.
It makes several recommendations to the government including sustained investment in financial education, recognition that financial literacy is an integral part of planning for life and efforts to simplify the savings and tax system.
John Lawson at Standard Life, said: “The speed at which the population is ageing has created a dramatic need to shift from a culture of borrowing to one of saving.
“Everyone needs a plan makes it clear that we have to make it both easier for people to save and equip them with the knowledge and skills to make well informed choices about how and when to save.”
Nick Cann at the IFP said getting financial advice on different strategies could be important as well to look at retirement issues such as if individuals were on track to meet their aims and what sort of flexibility they have.
Cann said one of the most important issues was simply knowing if you were saving enough.
“More and more people are moving out of final salary schemes and all of the indications coming from the government are that we are going to be doing more of this ourselves. People need to look at issues like, if I save 15 per cent of my salary, that sounds like quite a lot, but what does that mean and when will I be able to retire,” he said.
© Fair Investment Company Ltd