Brewin Dolphin Holdings plc

05/24/2022 | Press release | Distributed by Public on 05/24/2022 01:07

Higher earners describe themselves as confident with money, but 46% do not invest and many are underestimating how much they need for retirement. This misplaced confidence...

  • Higher earners describe themselves as confident with money, but 46% do not invest and many are underestimating how much they need for retirement.
  • This misplaced confidence towards money means many are risking their savings being eroded by inflation and running out of money in retirement.
  • 53% don't believe or aren't sure they will have enough in their pension pot to retire comfortably on

Brewin Dolphin's 'Relationship with Money' report was commissioned in order to understand more about people's attitudes to their money, their knowledge and competence with it, and how they are intending to use it to support their futures.

The report, which surveyed those with incomes above £50,000, warns that many people could be heading towards a 'retirement crisis'. Significant numbers are underestimating how much they need to save into their pension and there is a severe lack of knowledge around what is required for a comfortable retirement. Despite this, higher earners describe their attitude to money as confident, organised and in control, suggesting many don't even realise they could be facing a shortfall in their savings.

Key findings of the report:

1) We're not as good with money are we think we are
2) Higher earners are letting their money stagnate
3) Even the wealthy could be heading for a retirement crisis
4) 35 to 44 year-olds are juggling a multitude of financial pressures
5) Taking financial advice improves financial confidence and resilience

Robin Beer, CEO at wealth manager Brewin Dolphin said,

"The fact our research focused on higher earners - who one might expect to be better prepared than the general population - suggests that we are facing a wider societal problem in terms of saving for the future. With the cost of living continuing to rise, saving more today is a tough ask. Yet if we are to look forward to a financially secure future, it is vital that we find ways to bolster our long-term finances."

We're not as good with money are we think we are

The survey suggests a degree of misplaced confidence when it comes to money. Perhaps owing to their status as being in the 'top 9%1' of the UK adult population - earning more than £50,000 a year - as many as 34% of respondents describe themselves as 'confident' in their attitude to money. This rises to 39% of men versus 29% of women. Only 6% say they are 'not confident'.

These findings, however, are at stark odds with the lack of confidence and understanding reported in other areas of finance, such as saving for retirement and investing. It appears that many higher earners don't see investing or saving for the long term as part of their money management but as something completely separate.

However, when we dug deeper into higher earners' attitude to money, we found that respondents most value money for its ability to provide security and peace of mind (38%). This is particularly understandable after the past few years of instability, with many losing jobs, being forced to close businesses, or unable to work due to poor health or caring commitments.

Richard Harwood, financial planner, Brewin Dolphin said: "A robust financial plan is about far more than budgeting and managing your day-to-day finances. It's about understanding where you are now, where you want to be, and the steps you need to take to get you there."

Higher earners are letting their money stagnate

We are a long way from being a nation of investors. The research shows almost half of higher earners do not invest beyond their pension. This is despite widespread media coverage around the impact of inflation on our long-term savings.

Even among those earning £100,000 to £150,000 per year, more than a quarter don't invest and are therefore risking their money being eroded by rising prices. It's clear that many higher earners need advice on how to make their money work harder, so they don't miss out on their goals.

When Brewin Dolphin asked respondents why they don't invest, the answers highlighted a severe lack of understanding about investing and the value it offers. This is at odds with the high levels of confidence they feel towards more 'day-to-day' money management.

The findings show 34% believe investing is too risky, yet history shows that investing offers better returns than cash over the long term. 23% of those earning £100,000 to £149,999 claim they have no spare money to invest, highlighting a potential gap in financial planning. 34% worry about their lack of understanding - a figure that rises to 40% among women, versus 23% for men.

Geraint Hampson-Jones, investment manager, Brewin Dolphin said: "It is important to make investment as accessible as possible and ensure the language is understandable. We spend a lot of time with clients making sure that they understand the areas we're talking about, particularly when it comes to risk and return and what they're looking to achieve."

Even the wealthy could be heading for a retirement crisis

The survey shows the average age that Brits, earning over £50,000, would ideally like to retire at is 58. However, this is out of kilter with reality by six years. Based on people's current financial planning, respondents estimated they won't be able to retire until 64.

Worryingly however, half of those polled (53%) don't believe, or aren't sure if they will have enough to retire comfortably in their later years. And 15% of over 55s say that despite their age, they still don't have a true grasp on how much they will need - which is a figure that is very hard to work out by yourself - so their 'retirement gap' could be even greater.

The average amount those polled believe they will need for a comfortable retirement is £510,000, but there is a difference of nearly £80,000 between what men think they will require in their pension pot and women - with men saying they will need £548,000 and women believing that £471k will be satisfactory.

Whilst half a million pounds for those retiring today seems to be a reasonable figure, high inflation could mean that in 10 or 20 years' time, the amounts people need is significantly higher. This is where financial planning comes into focus.

Calculations according to Brewin Dolphin show that if someone retired at 64 with a £251,000 pension pot and wanted their savings to last to age 90, they would have to limit their retirement income to just £13,500 a year. Even at the upper end of the scale, a £500,000 pension pot would produce income of £26,500 a year to age 90. This assumes their pension fund grows at 5% per annum after charges and the income increases annually with inflation.

If they qualify for the full state pension, this would add around £9,600 a year in today's terms, bringing the totals to just over £23,000 and £36,000, respectively - but still significantly lower than the £50,000+ a year that higher earners are accustomed to.

Menna Cule, financial planner, Brewin Dolphin, warns: "Confusion reigns around how much is needed for retirement with even higher earners at risk of falling short of their goals and running out of money in later life. Our research has found that people who have not properly planned are overly ambitious when it comes to when they expect to be able to retire - with our dream versus reality nearly six years out of sync. We can sell ourselves a reality that may not actually be true and a lack of understanding is a huge factor. This is where the value of smart advice from a financial adviser truly comes to its full potential.

"Telling people to save for their retirement is a really tough message at the moment. The cost-of-living crisis is only just starting to bite, and many people don't have any money left after buying food and paying their bills. We know many people cannot afford to save for their retirement."

35 to 44 year-olds are juggling a multitude of financial pressures

While we are all experiencing the pressure of rising living costs and uncertainties around the impact of low interest rates on our savings, 35 to 44 year-olds, in particular, are juggling a number of competing savings priorities. The survey shows this group is being pulled between saving for retirement, their children's' futures, specific purchases or projects, and rainy-day savings, showing a financially pinched age group with a number of pressures.

Saving for an emergency is important. It can provide security and peace of mind for those times when the unexpected happens - anything from a broken boiler to a pandemic-related job loss. But often it can be difficult to know how to prioritise our savings, and how much we should have in our rainy-day fund before we move onto other goals.

Amy Pethers, financial planner, Brewin Dolphin said: "The cost of living crisis means many people can simply not afford to save. However, ideally, we would advise clients to have six months' worth of expenditure in a rainy-day fund, but it's important to remember there is no one-size-fits-all approach. If you're likely to be going through a lot of changes in the next few months, then you may wish to keep more money in cash. If you're further along in your life and you know what your income is going to be, then you might not need as much. It all depends on what is right for your individual circumstances, which an adviser can help you with."

Taking financial advice improves financial confidence and resilience

The lack of confidence, understanding and direction that higher earners feel when it comes to investing and saving for retirement can be improved through financial advice. Among the survey respondents who use a financial adviser, 'having a solid plan to achieve my goals' is the part of their adviser's service they value the most. This is followed by 'growing my money' and 'a sense of understanding'. Women, in particular, report improved peace of mind and sense of understanding through using an adviser.

Despite this, the survey shows a large proportion of higher earners are missing out on the benefits of advice, with only 27% saying they use an adviser. This falls to just 20% of those earning £50,000 to 75,000 per annum, and rises to 57% among those with an annual salary of £150,000 and above. This could suggest that many higher earners don't believe they earn enough to justify seeking financial advice.

When exploring what might encourage someone to seek financial advice, winning the lottery was the most common answer (43%), followed by inheriting money (39%). Again, this suggests many of us believe financial advice is for wealthier people who already have a substantial sum of money, rather than for helping us to grow what we currently have.

Menna Cule, financial planner, Brewin Dolphin, said:

"Many people think they need to be a millionaire to justify seeking financial advice, but this isn't the case; nearly everyone could do with a little help taking control of their finances. If you're unsure whether advice is right for you, I would suggest going to see a couple of different advisers. This may show some gaps in your thought process, or gaps in your provision, and it will help you find an adviser who 'gets' you and who you can see yourself working with."

The full report can be viewed here: http://www.brewin.co.uk/relationship-with-money

1 Higher and additional-rate taxpayers comprised 8.6% of the UK adult population in 2020/21: https://ifs.org.uk/taxlab/data-item/number-taxpayers-and-higher-rate-taxpayers-over-time

-ENDS-

The research of 2,000 UK adults with an income of £50K+ was commissioned by Brewin Dolphin and conducted by Censuswide in February 2022.

CASE STUDY - Boosting your pension pot

Whilst not a real client, this case study example shows how increasing your pension contributions and retiring later could supercharge the amount of money you have in retirement.

Tariq, 40, is married with one son and works at a design agency earning £55,000 a year. He has been diligently saving into his workplace pension since he was 25 years old. Tariq and his employer contribute a combined 8% of his salary into his pension each year, and he is now sitting on a pot worth just over £71,000.

Tariq feels sure that his diligent savings habits mean he can retire at age 60 and enjoy a comfortable lifestyle in retirement. However, when Tariq takes up the offer of a free consultation with a financial adviser, he realises he could be facing a shortfall.

The adviser explains that if Tariq's combined pension contributions remain at 8% of salary, his pension at retirement could be worth just over £370,000. This assumes annual investment growth of 5% after fees and before inflation, and that Tariq receives yearly pay rises of 1.5% as well as intermittent salary increases in line with promotions. If Tariq retired at age 60 and started withdrawing £30,000 a year, his pension pot could run out at age 75. As it stands, retiring at age 60 is unlikely to be a realistic goal.

Tariq's adviser discusses some of the steps he could take to make up the shortfall. One option is to work for a few years longer until age 65. Tariq is reluctant to work for longer, but doing so could add another £140,000 to the projected value of his pension at retirement, allowing him to withdraw £30,000 a year in retirement until age 88. He soon realises that retiring later is a sacrifice worth making.

Tariq's adviser also suggests trying to increase his pension contributions to 15% of salary. While Tariq can't afford to do this at the moment, he sets himself the goal of increasing his contributions from age 45, when his son will have finished private school.

Five years later, Tariq sticks to his goal. He can now look forward to a pension pot worth just over £700,000 at retirement, assuming annual investment growth of 5% after fees and before inflation. With careful financial planning, he could start withdrawing a higher income of £35,000 at age 65 and still be left with money in his pension pot at the ripe old age of 93.

The value of investments, and any income from them, can fall and you may get back less than you invested. Neither simulated nor actual past performance are reliable indicators of future performance. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy, Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

PRESS INFORMATION

For further information, please contact:
Richard Janes [email protected] / Tel: +44 (0) 20 3201 3343
Siân Robertson [email protected] / Tel: +44 (0) 20 3201 3026
Chloe McFarlane [email protected] / Tel: +44 020 3201 3490
Payal Nair [email protected] / Tel: +44 (0) 20 3201 3342

NOTES TO EDITORS

About Brewin Dolphin

Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. With £56.3* billion in total funds, we offer award-winning, personalised wealth management services that meet the varied needs of our clients including individuals, charities and corporates.

Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £49.4* billion on a discretionary basis.

Our intermediary business manages £18.3* billion of assets for over 1,700 advice firms either on a discretionary basis or via our Managed Portfolio Service, the MI Brewin Dolphin Voyager fund range and Sustainable MPS.

In line with the premium we place on personal relationships, we've built a network of 33 offices across the UK, Jersey and Republic of Ireland, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients' needs at the core.

For more information on the recommended cash acquisition of Brewin Dolphin by RBC Wealth Management announced on 31 March 2022, visit: www.brewin.co.uk/RBCoffer

*as at 31st March 2022.

The value of investments, and any income from them, can fall and you may get back less than you invested.

Brewin Dolphin is authorised and regulated by the FCA (Financial Services Register reference number 124444)