Getting a client into the right product is not the only conundrum, there is also a need to ensure the client has the ability to draw sufficient income from a variety of products to meet their needs and maximise tax efficiencies throughout their retirement.
Planning is the key to ensuring that your clients are placed in the right retirement income solutions, says Fiona Tait, business development manager at Scottish Life.
Picking the right option of course depends on the client’s needs and preferences, in particular their income and capital sum requirements, says Ms Tait, suggesting this might be identified by cashflow planning.
Andrew Tully, pensions technical director at MGM Advantage, adds that other key drivers for clients that advisers need to take into account within the advice process are likely to include:
• short and long-term income needs, for example if a pension is supplementing part-time earnings, or if state pensions will kick in at some point;
• tax-efficient solutions;
• capital preservation;
• the real value of income over time, taking into account inflation;
• the ability to vary income should circumstances change;
• providing benefits for dependents on their death; and
• consideration of long-term care requirements.
With life expectancy increasing, some clients are living 30 years or more into retirement, stresses Alastair Black, head of customer income solutions at Standard Life.
“In practice, it means your clients will need more income for longer - and a growing number will need reserves to pay for long-term care.”
It is important to understand that all of the retirement income product options are subject to an element of risk, says Mr Tully.
“Great emphasis is correctly placed on investment risk, but it is important for clients to realise that risk presents itself in a variety of ways.
“For example, conventional annuities can suffer greatly as a result of inflation. It may be that advisers need to use some of these solutions in conjunction with each other in order to best serve the client’s requirements.”
He suggests an example of this might be using a conventional annuity to secure core lifetime income and using an investment-linked annuity to manage additional income requirements, while giving some income flexibility to cope with changing circumstances, and maintaining equity exposure which will hopefully help offset the corrosive impact of inflation.
