Need Analyser, Savings - Shortfall in retirement? How to use the savings need analyser to determine the need for additional money purchase contributions

Shortfall in retirement? How to use the savings need analyser to determine the need for additional money purchase contributions. 

Provided that you have shortfall shown in the cash flow following retirement, you can use the Savings Need Analyser for this purpose.

Go to the Let's See charts, select Simulations in the panel at the bottom of the charts > Need Analyser > Annual Savings.

Select a goal event at which contributions end and spending from savings begin. This would likely be the individual's Retirement event. Any event could be used when running the simulation, however.

Bear in mind that the savings are modeled using a taxable investment account, not a specific pension.

When run, the savings need analysis creates a special reserve account called "Needs Analysis" when running the simulation. Funds are deposited into this account, which is an investment account, and held until the specified target event after which they are released for payment of expenses.

The net assumed growth rate of this taxable investment account can be viewed by clicking any bar of the lower chart shown when running the simulation, prior to the savings target event selected for the simulation - e.g. Retirement. This bottom chart shows the simulation results. Click the Detailed Info link at the bottom of the chart legend. The chart details panel will display. Select the Investments tab. Find the "Needs Analysis" account. A growth rate will be shown for this reserve account, net of account fees.

This growth rate is set from Preferences > Plan Preferences (on the right side of the screen) > Default Inflation / Growth Rates > Investment Growth %. The default fees, deducted from this default growth rate, are also set in Plan Preferences on the Investment Fees panel, in the Taxable % field.

If your client already has no shortfalls or even surplus after the selected goal event, the analyser may return a negative result (e.g. -10,000). This indicates the amount of surplus your client could potentially spend or gift during the selected timespan.

Bear in mind that there are many factors that can affect your client's pension contributions and need in retirement including annual pension contribution limits, tax relief on pension contributions, possible matching employer contributions, how income is drawn from a pension, whether the pension is crystallised into a USP, if drawdowns are phased, and whether your client is eligible for flexible draw downs or if the pension is annuitised and which annuitsation rates and options are applicable.

Considering all of these variables, the need analyser will give you only a rough approximation of an annual contribution amount between now and the set goal event. This figure is likely to be higher than what would be needed as a pension contribution. My suggestion is that you take the result from the analysis and create a few different scenarios modelling the increased contributions together with various draw down and annutisation options to see which best suits your client. In fact, this is precisely what the software is designed to do.