Decumulation was the subject of lively debate at our adviser dinner round table last week, when advisers from different parts of UK (and with different points of view) came together to discuss this tricky subject.
The diversity of retired clients’ circumstances makes it difficult to categorise them into any one particular ‘segment’. Some clients have enough income from DB pensions and other sources to mean that they don’t have to face the challenges of decumulation. They remain in the accumulation investment category well into their retirement.
In a recent survey of advisers, we found that over 60% of their clients in retirement don’t draw regular ‘income’ from their pension funds, and just under 30% have taken their tax-free lump sum. Advisers at our round table suggested similar situations for a good portion of their clients. But others – and perhaps eventually most – face longevity risk, sequencing risk, pound cost ravaging, as well as the potential hazard of possibly needing to pay for long-term care. For them, the key issues are around long-term sustainability of their income and capital.
Cash flow planning plays an integral part in accounting for these issues, and we are seeing a rise in this practice over the years. Estate/intergenerational planning and long-term care also set these clients apart. In general, most advisers are putting increasing emphasis on sustainability of withdrawals to meet clients’ needs and wants, with tax planning as a key component of the offering.
Nearly half of advisers (45%) tell us they have a centralised retirement proposition – an approach that is distinct from the centralised investment proposition for clients in accumulation. Despite the wide range of possible solutions – from portfolios of multi-asset funds to DFM-run models to annuities – retirement remains the “hardest, hardest problem in finance.”
We periodically hold private adviser round table dinners on key topics within the advice space to inform our research. Held under Chatham House Rules, discussions range from adviser firm business models and challenges, investment selection and outsourcing, and use of tech in the advising process. If you are interested in finding out more on how to get involved, please get in touch.