Withdrawal Strategies: How are retirement strategies changing?
Over the years that we have been running our adviser survey, we have witnessed a growing number of advisers adopting centralised retirement propositions (CRPs). This is reassuring for two main reasons; First, in the light of the Consumer Duty introduced by the regulator and, second, the need to consider specific retirement concerns such as sequencing and shortfall risk. As such, it’s encouraging to see a growing number of advisers using dedicated retirement solutions for their clients’ decumulation needs.
We have analysed the recent figures from the FCA’s Retirement Income Data. Every year, the regulator looks at trends in pension withdrawal rates, DB to DC pension transfers, as well as the use of advice when clients purchase retirement products, amongst other metrics. The data gives some insights into retirement income patterns and consumer behaviour.
Since the introduction of the Pension Freedoms nine years ago, the landscape for retirement planning advice has changed. Drawdown has allowed clients have more flexibility in how they access their retirement income with the help of advisers and some financial planning.
The data from the FCA shows that drawdowns increased by 28% from 2022/23 to 2023/24 and the total number of pension plans accessed for the first time increased by roughly 20% over the same period.
Unsurprisingly, annuity sales continue to see an increase due to the attractiveness of high interest rates post-pandemic. Although, how long this trend lasts remains to be seen as interest rates have started to decline across much of the developed world.
Source: FCA Retirement Income Data ; October 2024
Tax planning and the budget
Tax planning as part of retirement income advice is also critical. With speculation rife about the upcoming budget later this month, advisers have yet another opportunity to demonstrate the value they add to their clients over the coming weeks. We may see increases in capital gains tax (CGT), a revamp of tax allowances or yet more tinkering with the pension allowance thresholds.
As we wait for the budget it is worth reiterating that as clients move into the decumulation phase, they are replacing one set of risks with another. Advisers are better able to help clients with innovative investment solutions and retirement tools that help with client conversations and their retirement planning and move away from models and strategies which have perhaps run their course.
There is no “perfect” solution to mitigate the challenges clients will face in retirement because drawdown is a complex area of planning. Having a robust process in place whilst maintaining a flexible approach is useful to anticipate, and react to, changing events as they occur.
FE Investments Decumulation range brings a probability-based approach to financial planning and portfolio management. Matching your client's retirement circumstances to their investments helps provide them with a sustainable level of income they need to live comfortably in retirement.
Find out more about our Decumulation range here
Important information:
This marketing material is for financial advisers only. Not for retail investors. It is not a recommendation to buy or sell any particular asset class, security or strategy. Investors may get back less than originally invested. Financial advisers are solely responsible for any further distribution of this document.