Pension Freedom  

Retirement has become a journey

This article is part of
Guide to retirement income pathways

"You may want to start the first part with your annuity, and the second part you might want to take as drawdown - the 'nice-to-have'."

"The adviser would break that down to specific levels - it's making sure that's covered," he adds.

The client is likely to have access to the state pension as well, so that will be factored into the available sources of finance.

The other advantage with annuities is that if someone is in poor health, then they can get a better rate.

Billy Burrows, retirement director at Better Retirement Group, believes that planning for retirement means financial advisers need to engage in "holistic financial planning".

In his guide, 'Retirement is a journey, not an event', he says: "Holistic planning is important but many people compartmentalise their savings and investments.

"Left to their own devices, they will deal with their pensions, investments and estate planning separately.

"Whilst this may be understandable from a behavioural finance perspective, it does not make financial planning sense because all aspects of an individual's personal finances are interlinked.

"In most cases the outcome from a series of independent and unrelated transactions is probably not as beneficial as a series of related decisions which are part of a properly constructed financial plan."

Where does DB come in?

Retirement income planning has become more complicated in the past couple of years because of the rise in the number of defined benefit transfers.

The starting point for many advisers will be the Financial Conduct Authority's position that a DB transfer will normally be unsuitable.

But this does not mean it will be unsuitable for everyone, and the rules state that those with a DB pension of more than £30,000 must seek advice from a pension transfer specialist.

For example, if the DB member is unmarried and does not have financial dependents, or they are in very poor health with significant shortened life expectancy, then a transfer may be appropriate.

Conversely, if the client wants a secure income without undue risks, or is reliant on the scheme for core income and is generally risk averse, then a DB transfer will be unsuitable.

This guide will attempt to set out some of the issues relating to retirement income.

It will look at both the starting point - asking, how does someone effectively build up a good pension pot? - then at decumulation, when making the best choices to ensure the client's pension lasts the rest of their life is critical, and then how this is managed to achieve the best returns.

melanie.tringham@ft.com