A combination of shrinking pension funds and delayed retirement plans are driving changes in adviser firms’ retirement processes and propositions, according to Investec Wealth & Investment.
The wealth manager’s research in September 2022, which surveyed 2,000 people aged between 50 and 55, revealed that nearly a third (29%) have seen their pension funds lose value and almost a quarter (24%) have delayed their retirement plans.
Simon Taylor, head of strategic partnerships & platforms at Investec, said: “Rising inflation and the cost-of-living crisis is hitting people of all ages but is being particularly felt by 50 to 55-year-olds, who should be in the position of maximising retirement savings as they look forward to stopping work.”
Investec also commissioned a report by research firm AKG, which included a survey of 200 advisers in April 2022, on retirement planning and centralised retirement propositions (CRPs).
This research found that nearly three quarters (73%) of advisers had already launched a separate or distinct CRP to adapt to changing conditions.
Around two thirds (64%) of those surveyed said their firm’s CRP includes a withdrawal policy. More than half (55%) said the CRP includes an investment policy which reflects the risks associated with drawdown and 53% said their firm’s CRP included consideration of guaranteed income.
Just over a third (34%) of advisers said their firm’s CRP addresses clients’ essential income requirements by investing in lower volatility assets. More than a third (39%) do so by purchasing an annuity or retaining defined-benefit pension benefits where available, whilst 27% say they achieve this via a combination of the two methods.
Just under two-thirds of advisers said that between 25% and 50% of their firm’s advisory business relates to clients in drawdown while 17% said that clients in drawdown represented a higher proportion of their advisory business of between 50% and 75%.
New approach needs to be explored
Taylor said: “The research clearly illustrates that in current market conditions, none of us can act independently. The new approach of combining the certainty of a guaranteed annuity with the flexibility of drawdown needs to be explored.
“As far as we can see, the biggest challenge for advisers is managing the behavioural and business risks that serve to make CRPs a compelling solution for the future. All of this needs to be developed across the industry to ensure the best possible outcomes are delivered for all clients in their retirement years.
“Decumulation, which is vastly different from accumulation, focuses our minds on several combined risks that have been inadequately explored up until this point – this includes sequencing risk, longevity, inflation and market risk. This is particularly evident given the current economic climate. It is vital that we ensure investment portfolios evolve to mitigate these risks in the future.”
