While there is no fixed format for creating a CIP, advisers should consider creating a retirement CIP policy statement that outlines the systems, processes and controls in place for their CIP under the following suggested headings:
- Governance
- Client outcomes
- Suitability and choice
- Risk profile/withdrawal profile
- Investment options
- Communication
- Training and education.
In accumulation, client suitability should be assessed by a risk profile, attitude to risk may be more relevant than capacity for loss, investment solutions focus on growing a pot, and sequencing risk is mitigated by regular contributions.
In decumulation, client suitability should be assessed by a withdrawal profile, capacity for loss may be more important than attitude to risk, investment solutions focus on making a pot last, and sequencing risk is compounded by regular withdrawals.
Creating a retirement CIP does not mean adopting a “one-size-fits-all” approach. Far from it. It means applying a high level of governance to the building blocks of a retirement solution, then incorporating them into an approach that is best for a client (and/or group of clients).
Most importantly, a retirement CIP should ensure that the investment strategy of a retirement portfolio is consistent with the withdrawal profile of each individual client.
Creating and documenting a client withdrawal profile
Withdrawal profile is the term used in the FCA Retirement Outcomes Review to summarise the decumulation requirements of a non-advised client. The same approach can be adopted for an advised client.
What is a withdrawal profile?
At its simplest, the key elements of a withdrawal profile could be summarised by three questions:
- What is your pot size (how much have you got)?
- What is your withdrawal rate (how much do you need)?
- What is your time horizon (how long have you got)?
Pot size is easy to measure, but should incorporate all sources of investments that are included for withdrawals to fund a retirement income (e.g. Sipps, Isas, guaranteed investment accounts).
Withdrawal rate this measure of income required from investments and should be after including income from state pension and any other sources.
Time horizon is key to retirement planning. Investing for retirement requires an estimate around life expectancy in order to select the appropriate time. While this should be tailored on a client by client basis, using Office for National Statistics data is a robust starting point.
Incorporating withdrawal profiles into the planning process
For a retirement CIP, a withdrawal profile needs further definition. A retirement income plan, together with a statement around capacity for loss and single or multiple withdrawal rates for those single or multiple income objectives constitute a withdrawal profile.
First, we look at each of the components of a withdrawal profile in turn:
1. Making a retirement income plan
