Planning your retirement?

Independent advice needs to play a leading role in the retirement and annuity market, according to Defaqto, since 44% of 55 to 64 year olds have never sought advice on retirement planning. There really is some consumer lethargy about seeking advice on this subject and I am sure this applies to people in South Africa. Do you have the “It will never happen to me” syndrome perhaps? Unfortunately for all you ‘Baby Boomers’ (those born between 1940 and 1964) this is happening to us now, as many of you will testify!

I am sure that I am not alone in thinking that we spend our lives working to achieve the ultimate dream of having sufficient funds available to enjoy a long and wealthy retirement. That is assuming that your health is not a problem when you do finally get to retirement age. The trouble seems to be that we all underestimate what it takes to provide the necessary income we require in retirement. One study[1] has suggested that men in their 60s underestimate their longevity by about three years and women in the same age group underestimate by around four and a half years.

Therefore, I thought it would be appropriate to share some thoughts with you and I list below a number of things that will assist you in your personal search for utopia. The ultimate goal though is the same for us all as individual investors, financial planners, trustees or investment managers - and that is a long, safe, comfortable, hassle free retirement. So what help can I give you?

Firstly, one of the best things you can do is find and keep a good independent financial adviser. Even if you are in the business, you need someone who can give you a dispassionate view of your plans. Whilst there will always be concerns of financial product miss-selling in the finance industry, you should welcome the news that the pension area is being looked at very closely in well regulated jurisdictions. Indeed, specialist units have been set up recently to look at pension transfer business in order to protect consumers in the UK, but there are also other bodies elsewhere in the world, each working to protect their consumers, so don’t let this factor put you off. Good advice is worth paying for.

You need assurance that the advisor you are dealing with is well regulated and experienced. There are a number of regulated institutions and bodies that can assist you in this search. A good advisor will point you in the right direction for a scheme that suits your circumstances best, be it an Occupational Pension Scheme, adding an Additional Voluntary Contribution (AVC), building up a Personal Pension (PP), a Self-Invested Personal Pension scheme (SIPPs), a Retirement Annuity Trust Scheme (RATs), a Qualifying Recognised Overseas Pension Scheme (QROPS), or a Qualifying Non-UK Pension Scheme (QNUPS). Other structures will include Group Pension Schemes and Preservation Funds in South Africa, for example.

An adviser will help you find a good fund or a portfolio that allocates your money automatically across geographic regions. This is important since the markets and companies are truly global in their operations these days, benefiting from cheaper labour, cheaper running and administration costs or taking advantage of locally produced assets or commodities to sell in various international markets and to international consumers.

Your adviser will ensure that your chosen investment vehicle allocates across different asset classes, such as bonds, equities and cash. Some also use property, commodities and hedge funds providing a multi-asset approach. It is important to get a well-spread portfolio to allow the investment manager the opportunity to take advantage of those asset classes that are benefitting from the economic circumstances as they see fit.

Diversification is essential to spread and minimise your risk in the markets. There have been many surveys presenting the benefits of buying equities over bonds or cash over the years, so anyone taking a longer term view should accept an element of risk to give the best opportunity to achieve growth.

Your investment vehicle should be flexible enough to adjust to your changing and reducing risk profile as you get older. In general, a younger person can take a riskier approach to their savings whereas someone close to retirement needs a more cautious approach to maintain and preserve the accumulated capital.

If your savings are limited, your adviser will probably find you a single investment portfolio or fund to make life easier to monitor and save you the effort of trying to track and pick a number of separate funds. The fund should contain all of the above geographic and asset class diversification, which allows your retirement fund to keep up to date with the ever changing economic circumstances, if managed correctly.

So where does Ashburton fit into the provision of investment vehicles for retirement schemes? Well, we are finding more and more pension providers, advisers and trustees, who are looking after pension assets, requesting Ashburton Funds because they see the suitability of our tried and tested investment management process in their clients’ needs analysis.

As many of our readers will know, Ashburton has been actively managing cautious to low risk investment funds ever since we launched our first portfolio in 1982. It was designed for those people who did not have the time, energy, or experience to manage their assets themselves. It seemed obvious to us that clients would need a global asset management approach to take advantage of all major geographical markets, which offered both diversification and the opportunity to move monies into any markets that we felt would perform well at a given point in time.

The Asset Management service, which has operated for some 28 years now, has weathered many different market cycles, including the years of high and low inflation, bond crises, equity crises and market bubbles. The strategy and philosophy of that initial portfolio continues to permeate through the investment process used today and whilst we have maintained and grown our investment team, their longevity with us provides the stability of management that a retirement fund requires.

One of Ashburton’s aims is to keep volatility in this type of retirement fund to a minimum, so Ashburton’s in-house disciplines of never exposing the client’s monies to too much equity risk is essential in giving peace of mind. The management of the currency risk is also an essential ingredient in the management of overall investment risk. When assets are purchased for our portfolios in foreign currencies, the monies are exposed to the risk of the underlying assets as well as the currency of purchase.

So, if you or your children are considering where to start, or trying to build further assets in retirement and you need any assistance in finding an independent, qualified adviser in your area, or a specialist pension structure such as QROPS or a Preservation Fund, I am sure that Ashburton’s local representatives can assist by directing you to a selection of independent advisers in your area.

Gavin Fraser

Global Sales Director, Ashburton