Retirement Income CPD Course 

How to create a long-term investment plan

  • Understand the difference between accumulation and decumulation.
  • Consider when in the accumulation stage, what sort of investment strategy does a client need.
  • Learn how the investment strategy should change when a client reaches decumulation.
CPD
Approx.60min
How to create a long-term investment plan

There has always been a need to create a financial plan for retirement.

However, pensions freedoms require many more clients to think not only about how much they will need in retirement and how to save for it, but also how to drawdown an income once they are retired.

This means they may require the services of an adviser for longer.

Verona Smith, head of platform at Seven Investment Management (7IM), recalls: “Financial planning was always a skilled and difficult job, but there was a sense with many clients that you got them to retirement and the purchase of an annuity and they were safely home. 

“While annuities will still be the right option for some people, there are now far more options and now many clients need supporting far beyond their retirement date.”

Iain McGowan, head of fund proposition at Scottish Widows, notes: "There was a time when taking a lump-sum payment and an annuity were the primary strategies for retirement. But with pension freedoms, there’s no such thing anymore as a one-size-fits-all strategy for the accumulation stage."

It is true there are many more products available for use in both the accumulation phase and the decumulation phase. 

But not many clients will know how to use these to build a robust retirement plan, which is why seeking advice as early as possible is essential.

Steve Patterson, managing director at Intelligent Pensions, says: “It is really important to appreciate the different investment strategies needed for the pre-retirement ‘accumulation’ phase and the post-retirement ‘decumulation’ phase.” 

For this reason, clients need to understand the difference between the two phases.

Put simply, accumulation is saving what will be needed to fund retirement, while decumulation is taking out some income from those savings once the client has retired.

Fail to plan, plan to fail

What do advisers need to consider for clients in the initial retirement planning phase?

Annabel Tonry, DC client adviser at JPMorgan Asset Management, suggests advisers thinking about the accumulation phase for their clients may need to take into consideration four factors relating to their clients’ individual circumstances:

  • Their income
  • Their sources of wealth
  • How much they are currently saving
  • At what age they want to retire

“There are, however, some basic principles that we would consider prudent for all DC savers,” she remarks.

“We would expect to see DC savers in accumulation taking advantage of greater risk when they are younger, and being able to tolerate higher levels of volatility. As they move closer to retirement we would expect them to gradually reduce their risk exposure and to potentially become more diversified as their savings reach their largest point.”

When accumulating, what type of strategy is best?

Scott Gallacher, chartered financial planner at Rowley Turton, explains: “To a large extent this is led by the clients’ future income/capital requirement compared to their available resources, i.e. if you have a big pot and low income requirement, you may be able to achieve your goals with lower risk investments. 

Comments

CPD
Approx.60min
  1. Ms Smith says what about annuities?

  2. According to Ms Tonry, advisers thinking about the accumulation phase for their clients may need to take into consideration four factors. Which one is the odd one out?

  3. Mr Gallacher says most of his clients' attitude to investment risk is what?

  4. One of the big challenges for many advisers is convincing what type of clients to take the right level of investment risk, says Ms Grimston?

  5. Mr Glancy says providers and advisers need to work together to make decumulation what?

  6. Mr Doran thinks investors should be building inflation protection into their portfolios. True or false?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Understand the difference between accumulation and decumulation.
  • Consider when in the accumulation stage, what sort of investment strategy does a client need.
  • Learn how the investment strategy should change when a client reaches decumulation.

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