Inflation special webinar: Is your retirement in jeopardy?

Panel:

Azad Zangana: Senior European Economist & Strategist, Schroders

Jo Harris: CEO Consumer Relationships, Lloyds Banking Group

Joanna Westwood: Regional Director, Schroders Personal Wealth

Makala Green: Personal Wealth Adviser, Schroders Personal Wealth

Kate Thornton introduced our inflation webinar special by setting the scene, “We’ve seen the pound take a pounding of historical levels, we’ve had two Prime Ministers in two months, the financial fallout of the war raging in Ukraine as well as the world working its way to recovery following a global pandemic that saw the planet go into lockdown.

“It’s a cocktail of events that’s left us with an economic hangover of epic proportions. It’s pushed inflation to double digits at a 40-year high and brought with it a cost-of-living crisis that has probably left you all feeling financially very anxious.”

Kate explained that Schroders Personal Wealth (SPW) recently surveyed 1,000 adults to understand what major concerns people have as we traverse these incredibly difficult times. Our research focused particularly on people in, or approaching, retirement: 65% of our 1,000 respondents were aged 55 to 80, while the remaining 35% were aged 18 to 54.

Kate added, “Much of what we heard back will probably resonate with many of you. Our survey found that 92% of people are worried about increased inflation and the impact it could have on them and their families. 32% of people say they feel stressed and anxious about their finances and 51% think about their finances more than they used to, with 55% having to cut back on everyday spending.

“And when it comes to retirement 63% were not confident that they will reach their financial goals for retirement, with 17% saying they’ve had to delay their plans to step back from work.”

Kate and the panel members then discussed what is happening in the financial world in the hope that you can better understand what inflation could mean to you and your own plans for your financial future.

Kate: Are we in unprecedented times?

Jo W: Looking back over the past 20 years we’ve had lots of things that have rocked the financial world. Events such as 9/11, the banking crisis, and Covid. And now with the war in Ukraine which has disrupted the supply of energy and impacted energy bills and the prices of staple items such as bread, butter and milk. It’s the perfect storm with everyone feeling the pinch at the moment.

Azad: We would potentially be in a better situation if not for the pandemic, but some of the things we’re seeing today, such as higher inflation and weakening growth, we’ve seen before. I certainly don’t think it’s quite as serious as the banking crisis.

Kate: How is this making people feel?

Makala: The important thing I share with many of my clients is that we’re not alone. This is a global crisis. Many people will have experienced times like this before and it serves as a reminder that it’s a core time now for financial planning.

Kate: Is this anxiety shared no matter how deep people’s pockets are?

Jo H: Regardless of people’s situation, about 75% to 80% of our customers are telling us they are worried. Especially coming out of the Covid pandemic where everyone had this hope of stability, to now be faced with this new set of uncertainties, it’s impacting everybody in different ways.

Kate: Let’s cover some basic questions. Why is inflation so high and how long is it going to last?

Azad: It all started as the pandemic was coming to an end, businesses were reopening, people had cash to spend freely but a lot of restrictions were still in place with companies unable to scale up quickly enough. Staff shortages are affecting food and service industries in particular. This, as well as bills to pay and loans to repay, led to higher prices to enable businesses to survive, although demand remained high.

But then we had several other shocks. We have the conflict between Russia and Ukraine, which led to a severe disruption to the supply of oil and gas, particularly gas, to European markets. The UK doesn’t import gas from Russia, but we do import it from Norway and prices are set on a European-wide market.

Liz Truss put a cap on the average bill for most households, but the problem is that there is uncertainty whether this cap survives past April. We’ll find out in the next few weeks. In addition to all this, we’ve got higher food inflation due to food commodities being affected by the crisis in Ukraine, which is likely to continue to rise until at least May next year.

How long will this last? Well, this is not unprecedented. People will remember the 1970s and 1980s when interest rates had to go up quite aggressively to get inflation under control. It’s important to remember that the food and energy inflation is external and so it’s largely out of the control of the UK government or Bank of England. But, of course, it has an impact on the economy.

The only real solution for the Bank of England is to try to reduce demand to match the availability of goods and services that are there. If they can do that then companies won’t be able to pass on the costs which will eventually bring inflation back down. I'm expecting inflation to remain elevated, although not in double digits, to be around 6% by the end of next year and down around 3% to 4% the following year. It may take a little longer to get back to that magic inflation target of 2%.

The external factors, such as energy and food prices, have already peaked. Prices will still be high, but they won’t be going up by as much as they have done in the last year. But the inflation problem in the UK, and in most other countries, has become more serious and domestically driven. This is caused by the lack of available staff and the only way you fix that is to drive unemployment up. Unfortunately it may be the case that people have to lose their jobs and then we will have enough unemployed people to fill job vacancies and eventually that brings inflation back down.

Kate: What are people generally concerned about?

Jo H: We’ve been hearing a lot about energy prices and food prices for a while, but more recently global stock market volatility and increased mortgage pricing have brought different challenges. Perhaps somebody that wasn’t concerned before, because they thought they could see their way through this period of uncertainty, is now concerned.

With the recent government announcements, there was so much changing at a rapid rate that it has been difficult for people to keep up. At Lloyds Bank, we encourage people to talk to us so that we can understand what it means for them. As a financial organisation we need to be part of the solution and help people to build financial resilience as we recognise that we’re probably in for a few more twists and turns yet.

If we wait for a period of stability, then we’re probably being unrealistic. The important thing is that people don’t often think about making their money a priority, but it is. Making adjustments based on what can be afforded, either to pay the bills or provide a financial buffer, is more important than ever. It’s time to talk to the experts to discuss how to put a plan together in light of this volatility so that it doesn’t affect longer term plans and aspirations.

Kate: Are people having to change their plans because of the impact of inflation?

Jo W: Yes, especially people who have taken early retirement because they’ve made that decision based on their financial situation before inflation started rising. We’ve spoken to people who are returning to work to make extra money in the short term. We see this particularly when there is a gap between a pension and state pension. Someone may have planned to live off their personal pension, but now extra money is required to bridge the gap until state pension is claimed. People definitely appear to be tweaking their future plans to cope.

Kate: Are people worried about investing and using their money in other ways?

Jo W: What we are seeing is that clients who have investments are starting to think about their own family. In cases where clients don’t have a mortgage but have children who do and are struggling to make ends meet, they may want to pass on their wealth now to help them rather than waiting until the future.

Makala: People have the perception that they’re not wealthy enough to invest, but for everyone it’s important to sit down and map out how future financial goals and needs can be met.

Jo H: It’s so true that people don’t consider themselves wealthy enough to see a financial planner. In many cases, people have worked hard all their lives and have built up their savings, but hold it all in a savings account. With higher inflation, people are questioning what it means for their savings, which is when we can introduce them to Schroders Personal Wealth for a chat if they are eligible. Even a small amount of money can be invested to grow, and we encourage people to speak to the experts to create a personalised financial plan, which is why the partnership between Lloyds Bank and SPW is so important.

Makala: Some people find it difficult to talk about money, but a financial plan can help give people peace of mind that their future is being looked after.

Kate: Why are people so closed to getting financial help?

Jo H: Amongst our customers we see people in many different situations. For most they don’t jump out of bed in the morning saying today’s the day I’m going to think about my finances. What people do think about is their goals in life. Just have a conversation with us. A simple talk about simple things such as income and expenditure can help ease worries. People shouldn’t be put off, it’s really just good planning for life.

Kate: What do clients want from you right now?

Jo W: Many of our clients are coming to us for reassurance, as they’re seeing the value of their investments fall. We talk them through the fact that their investments and portfolios are well diversified, spread across a number of different asset classes. Simply put, not all of your eggs are in one basket.

At SPW, we take an active approach to managing that money, which means that we look for opportunities that can be taken advantage of when markets are low. All markets are cyclical, which makes investing a rollercoaster of emotion. So, when you’re invested and you’re seeing the markets increase, you feel euphoric, and your natural instinct is to put more money in so you’re buying really high. When markets start to fall, it’s natural to be nervous. It’s our job to explain that now is in fact a good time to put money in, but what you don’t want to do is take money out, as you will crystallise your losses. Investing is for the medium to long term as markets can have short-term volatility.

We always recommend that clients set a decent amount of cash aside for a rainy day and now might be that rainy day. It’s better to draw on cash reserves than take money from investments after making a kneejerk reaction.

Your questions answered

Q: I am approaching the age of 60 and plan to continue working for some years. Is there anything I need to start or stop doing due to today’s current market?

Makala: There are three key things you could do right now.

Review all pension benefits and identify any shortfalls or gaps so that you can live the way you have planned when you retire.

Make the best use of annual tax-efficient allowances – if you don’t use it, you lose it.

Review pensions performance annually and change investment allocations as and when needed.

Q: Is now a good time to invest?

Jo W: At SPW we always say it’s about ‘time in the market, not timing the market’ because even the experts can’t predict when the best time to invest will be. We recommend talking to us and explaining what you want to achieve, and we can help make investment decisions with you.

Q: Interest rates don’t seem to follow mortgage rate rises, why are savings rates being held back?

Azad: There is always a bit of a gap between mortgage costs and what the savings rates are, but they are rising. The Bank of England interest rate only influences mortgage rates, but they are really set by financial markets, which is why the government’s mini budget had such an impact.

Jo H: With mortgage rates rising, while the majority of mortgage borrowers are on fixed rates, if you have got a variable mortgage it may be worth having a look at fixing your rate rather than staying on a variable rate. We recently helped one lady to save £9,000 in the next three years by fixing her mortgage. If you’re in this position come and speak to us at Lloyds Bank, there are lots of ways to contact us.

We have many tools to support such as a cost-of-living hub on our website, we have a credit score tool on our app, money insights to see where your money is going but most importantly simply phone or call into a branch to talk to an expert to help with your individual circumstances.

Q: Markets have been falling for some time, how can I trust your advice?

Jo W: Our investment managers are used to dealing with volatility. Markets always operate in cycles and our educated experts are managing our clients’ portfolios and they have been here before. We are here to reassure and support people. For example, with cash savings, inflation erodes the value of your money in real terms. We can help people understand this and what they could do to meet their future financial goals.

Key takeouts

As the webinar drew to a close, Kate asked each of the panellists to share their main takeaway from what has been discussed.

Azad: The important thing to recognise is that interest rates will rise further before they eventually come down. It probably won’t be as bad as financial markets are predicting. Personally, I think that interest rates will hit 4%, maybe less, for six to nine months, but then they will start to fall.

Jo H: Start by getting your head around your own finances. There are so many digital tools available to help you. For those who have a bit of spare cash and are eligible, speak to SPW to get a financial plan sorted. The main thing is to reach out for help rather than sitting back and worrying.

Jo W: Don’t be driven by your emotions. Take advice and don’t make any kneejerk decisions. You’re not on your own.

Makala: There is lots of uncertainty out there but avoid panicking. Look at your financial plan, sit down with an adviser and understand what solutions can be put in place. Forward planning is key to aligning the solutions with your future goals.

If you would like to pick up the conversation with someone from the Schroders Personal Wealth team, please visit www.spw.com to make an appointment. To contact Lloyds Bank you can visit www.lloydsbank.com.

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