Changing approach to at-retirement advice

Mr Massey says advisers will therefore need to consider a range of different options available for retirees to ensure they can maximise their retirement income.

Mark Stopard, head of product development at Partnership, says benefit based quotes [i.e. if you put in £x you will get y in guaranteed income] will become more popular as people use these to determine how much they need to set aside to cover essential costs and how much they can then use for other purposes.

Previously, Mr Stopard says people tended to say with a pot of x and you will get an income of y in a world where products were the starting point rather than the clients’ income requirements.

Mr Stopard says: “Advisers will also be able to help their clients build more flexibility into their retirement planning than previously may have been possible.

“For example, some clients may want sustainable drawdown for the rest of their retirement while others may want to run down their fund over a fixed period (such as, for a ‘high cost’ active early retirement before relying on other income for a more settle period).

“Others may just want occasional lump sums and a tax-efficient rainy day fund.

“Therefore, some drawdown element may be suitable for customers who would not have otherwise considered it, especially if the adviser can demonstrate that essential spending needs have been covered with secure income sources.”

Adrian Walker, retirement planning manager at Old Mutual Wealth, says advisers have always provided advice on pensions and investments within the context of their client’s other assets, income sources and long term requirements.

The main change for advisers is to now consider the tax treatment of pension savings on death, which Mr Walker says means a pension may become the last place clients take income from if inheritance tax is a consideration for them.

Mr Walker says: “Holistic financial planning is the only option. Any adviser will always take into account their client’s entire situation when advising on retirement income.

“Looking at simply private pension savings to access income, without taking account of other savings could mean clients subjecting the capital to unnecessary income tax charges that will reduce the net income they receive in the short term, while reducing the amount of capital they have left to sustain longer term income needs.”

Historically blending products may have meant more work for the adviser and this may have been difficult to justify, particularly for those with pots of less than £250,000, says Andrew Tully, pensions technical director of MGM Advantage.

He says the benefits to the customer of a new blended approach are that it can meet all of their objectives.

Mr Tully says his research suggests many people have three main wishes – a guaranteed income, flexibility and the ability to pass on wealth to family. Neither annuities nor drawdown are likely to meet all of those needs alone.

Mr Tully says: “While some customers will be happy to use one solution initially and move to another over time, others may want a blend on day one with some guaranteed income and some money available to be used as and when needed.”

But in terms of arranging blended solutions, Mr Tully says what providers need to do is help customers and advisers by making it simpler and easier to blend different solutions.

Traditionally Mr Tully says it has meant two or more completely unconnected contracts, double the work for the adviser as well as appearing more complex to the customer.

He says providers need to change so that a blend can be one contract, with one application form, one annual report and one payment to the customer – so it looks and feels simple while delivering the best of both worlds.