Jenny Davidson: Protecting retirement journeys through health shocks
A common thread has emerged from several major reports published in recent weeks: too many people are not saving enough for retirement. Our most recent A common thread has emerged from several major reports published in recent weeks: too many people are not saving enough for retirement.
A common thread has emerged from several major reports published in recent weeks: too many people are not saving enough for retirement. Our most recent Retirement Report finds that a staggering 12. 2 million people face pension poverty in later life. Jenny Davidson – Illustration by Dan MurrellBuilding a pot that allows for a comfortable retirement is difficult on its own, even for those who are in good health and able to hold down long-term jobs. For those struggling with health setbacks, it’s an even bigger challenge. Often for reasons completely out of their control, ill-health related disruptions to earnings can lead to lower levels of pension contributions, resulting in significant knock-on effects for retirement. For advisers, understanding the realities of their clients’ lives is just as important as managing their portfolios. Ultimately, this is less about reacting to a crisis and more about ensuring an adviser’s entire planning approach has resilience built into it from the get-go. By embedding this flexibility early on, advisers can minimise the impact of health shocks on their clients, keeping financial plans intact and ensuring they stay firmly on track for retirement. The scale of the problemHealth concerns can turn someone’s financial plans upside down when they least expect it, and most people will experience this to some extent in their lives. Our recent findings reveal that more than a third (34%) of working-age adults in the UK have had their earnings disrupted by health issues in the last five years. With so much acute physical and emotional strain, long-term financial planning can easily fall down the priority listCrucially, this was found to be most prevalent in those aged 50 to 64. These are often peak earning years, when many people are increasing pension contributions in the run-up to retirement, meaning any gap can be particularly damaging. Beyond the immediate shocks of a period of poor health, many individuals in the UK are dealing with recurrent or chronic illnesses which pose an even larger barrier to building savings. Our report found that a fifth (20%) of those living with health conditions say that unpredictable income makes saving for retirement difficult – a figure nearly twice as high as that reported by those in good health. When someone is dealing with a health issue their focus naturally shifts to treatment, recovery, maintaining employment and balancing family responsibilities. With so much acute physical and emotional strain to navigate, long-term financial planning can easily fall down the priority list. Plans also need to be built on the understanding that life doesn’t follow a straight lineIndeed, 22% of individuals with physical health conditions, and 34% of those with mental health conditions, admit they struggle with day-to-day budgeting. Building a resilient planFor advisers, this is an important reminder that ill-health shocks can disrupt savings and affect long-term goals at exactly the time it matters most. Careful planning can help to soften the impact. First, advisers should consider whether established protection products – such as income protection, critical-illness cover and private medical insurance – could help alleviate a clients’ situation. While these products are not a cure-all, they can provide an important financial safety net if poor health disrupts earnings, helping to protect long-term savings goals at a time when contributions might need to stop altogether. This can be an important first-line mitigation but is just one part of a resilient plan. Scottish Widows appoints Jenny Davidson as intermediary wealth directorPlans also need to be built on the understanding that life doesn’t follow a straight line. Retirement plans, and investment portfolios more broadly, must be structured with enough flexibility to adapt whenever circumstances change unexpectedly. In practice, this might look like ensuring clients maintain enough liquid assets to comfortably navigate sudden changes. It may also mean utilising products and tax wrappers that do not come loaded with heavy penalties for early exits or adjustments, allowing the financial plan to adjust smoothly as the client’s health and circumstances change. The power of touchpointsAdvisers shouldn’t underestimate the value of their trusted relationship with clients and the importance of simply ‘being there’. With a third of those facing mental-health challenges admitting they struggle with day-to-day budgeting and planning, advisers should consider increasing the frequency of their touchpoints. Supportive conversations can help clients feel in control when long-term planning starts to become overwhelming. Financial matters will always feel deeply personal to those who are struggling with their healthRegular reviews also create an opportunity to help clients get back on track once they are well enough to go back to work or to resume saving. If the client is past the immediate crisis and is returning to work, the adviser can proactively map out a strategy to safely increase their contributions to recapture any lost ground. Financial matters will always feel deeply personal to those who are struggling with their health, and advisers who approach these conversations with understanding and skill are truly invaluable. Periods of ill health are an unfortunate reality for many, but they shouldn’t define retirement outcomes. By building resilience into financial plans and responding with empathy, advisers can help clients manage these challenges and prevent a long-term decline in retirement standards. Jenny Davidson is intermediary wealth director at Scottish Widows