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Industry is ill-prepared for pension change, say experts

Industry is ill-prepared for pension change, say experts

The adviser industry is failing to face up to the scale of the task ahead with the upcoming pension freedoms expected to lead to an increased demand for drawdown portfolios, experts have claimed.

With the removal of the compulsory requirement to buy an annuity on April 6, legions of retirees are expected to take charge of their pension savings. Many are likely to opt for drawdown portfolios designed to provide an income and protect their capital throughout retirement.

But experts have suggested the industry’s approach to retirement planning, and especially running drawdown portfolios, falls short of what is necessary.

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Investment planning has become too focused on the accumulation stage of wealth and not enough on the decumulation phase, experts have suggested.

Phil Young, managing director of threesixty, said advisers had been seduced into thinking of themselves as wealth managers when in reality more should be focused on retirement planning.

He said even though most clients using advisers were over 55, with many of them at or approaching retirement, advisers “brand themselves as wealth managers but the reality does not reflect that”.

Mr Young said when he examines adviser firms, many have “beautiful investment processes for accumulating wealth but do not necessarily finesse [those processes] to deal with the decumulation phase”.

With the pension freedom reforms on the horizon, many more people are expected to require decumulating portfolios, especially as drawdown only makes up approximately 5 per cent of the retirement market.

David Tiller, head of platform propositions at Standard Life, said: “Executing drawdown correctly is very important and advisers need to run drawdown portfolios in a more structured manner.”

Gill Cardy, insight consultant (wealth management) at Defaqto, said advisers needed to reconsider the historic approach to drawdown portfolios, which dealt with clients on a more bespoke basis, and should instead make their processes more efficient.

She said a more structured way of running such portfolios would allow advisers to meet the needs of clients with smaller pots of cash, while still being profitable.

But Chris Hannant, director general of the Association of Professional Financial Advisers, disagreed with complaints about a lack of adviser preparedness for dealing with retirement planning.

“If you look at the average age of [advisers’] clients, they are around 50 to 70 years old, many in retirement or semi-retirement,” he said, “so advisers are already used to helping clients who have stopped working.”

Is the industry equipped for demand surge?

An issue that has divided experts leading into the pension freedom reforms has been the adviser industry’s capacity to cope with any extra demand for advice.

The introduction of the RDR led to a drop in adviser numbers – there were 23,787 in summer 2012 but only 20,453 by the end of that year, according to figures from the regulator. The latest data available from the FCA suggest there were 21,881 in January last year, showing some recovery in numbers.

Standard Life’s David Tiller fears there is a “significant” shortfall in the number of advisers needed to deal with an imminent surge in demand.