Six in ten advisers believe the pensions industry has overlooked decumulation and has put too much focus of wealth accumulation instead.
More than four fifths (86 percent) of advisers believe this oversight will lead to a significant increase in the number of clients requiring advice on this area over the next five years, according to research from Heartwood Investment Management.
Decumulation is the process of converting pension savings to retirement income, for example through an annuity or drawdown.
The research found that advisers view managing market volatility (67 per cent), calculating a sustainable income (63 per cent) and longer life spans (55 per cent) as the biggest challenges in decumulation.
In contrast, 85 per cent of advisers said that their clients were most concerned about the impact of a “disorderly” Brexit on their retirement income.
Two thirds (60 per cent) of advisers believed their clients over-estimated how much income they could safely withdraw from their pension pot, compared with just 16 per cent who thought clients were capable of estimating the right amount.
Nearly all advisers (97 per cent) said that sequence-of-returns risk played a significant role when choosing an appropriate decumulation strategy.
Sequence-of-returns risk is the threat of damaging a pension disproportionately if markets dip early on in the process.
Ivor Harper, director at advice firm Park Financial Limited, said: "There is little doubt, in my mind, that decumulators need significantly more advice than accumulators. For the former, there is little or no time to correct matters if their plans go awry.
"As such, regular progress monitoring is vital. Furthermore, the factors that need to be taken into account during said monitoring are more complex and are unlikely to be fathomable by the public at large."
Matt Hollier, head of product at Heartwood Investment Management, said: “Sequence-of-returns risk [...] can be critical for clients taking an income from their portfolio. Simply put, if markets lose money in the early years, and clients are withdrawing an income, then they have a smaller portfolio to benefit from when the good years come along.
“Conversely, if the early years are strong, clients have a larger portfolio so when the bad years come later, the poor returns have less of an impact. Advisers need to address this risk within their dedicated decumulation solutions.”
Last week (July 26 ), Platforum found that advisers were dropping clients because they refused to stay within their agreed budget in drawdown.
Platforum’s report stated: “A few advisers told us they effectively have to police clients’ expenditure to ensure they don’t run out of money - even terminating relationships with obstinate clients who refuse to stay within budget.”
Richard Bradley, research director at Platforum, said advisers were concerned about the risk they carried from recommending drawdown in the first place.
Mr Bradley said: “When we spoke to advisers, the biggest risk they identified for clients in retirement was clients making excessive withdrawals – more risky than sequencing risk and longevity.
“We’re therefore seeing advisers focus heavily on ongoing monitoring of drawdown portfolios and cashflow modelling to ensure the money will last.
“While it may sound unpalatable to most advisers, a few told us they are effectively compelled to police clients’ expenditure so they stay on track.”
amy.austin@ft.com
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