Retirement CPD course  

Getting the best pension outcomes for clients

This article is part of
Guide to pension risk

Getting the best pension outcomes for clients
Photo by AlphaTradeZone from Pexels

Given the challenges of investment risk and bearing in mind the wide variety of client circumstances advisers are presented with, how can they ensure they achieve the best outcomes for clients, with regard to pensions?

Jon Young, financial planner at WealthFlow, says that a client-focused approach is key: “The most important and fundamental way of dealing with investment risk is by getting to know your client.

"Everyone is unique and so is everyone’s idea of what they want to do in retirement, so having conversations as early as possible about the lifestyle clients want should determine the investment strategy, not the other way around.

“Once that has been established and stress tested with a regular look at the client’s capacity for loss in retirement, then setting the minimum level of investment risk needed to meet these goals is the way forward, and the absolute best outcome for the client.”  

Catriona McCarron, wealth manager at Ascot Wealth Management, comments: "I believe the starting point has to be expectation management with regard to investment risk in pension planning. 

“We’ve had a rollercoaster of financial markets in the past five years, but I do fear the post-April 2020 recovery being so quick has given some false hope to less experienced investors. 

“Of course, advisers should complete annual risk and suitability procedures with clients to ensure they are taking a comfortable amount of investment risk within their pensions, but I think advisers can do more to help educate clients on why their investments are moving in a cyclical fashion during ongoing review meetings. Given the time horizon for investors staying in the markets for defined contributions (assuming drawdown) this is an important conversation topic.”

She adds: “In getting the best outcomes for clients, advisers should ensure they are continuously testing and meeting their client’s objectives, and should continue to take a critical view of their investment portfolios.”

Investment risk, outcomes and advice 

Looking at the main investment risks associated with pensions and the impact that these can have, Keith Churchouse, director and chartered financial planner at Chapters Financial, says: “In principle, pensions only require two things: money and time. If time is short (where the client is close to retirement), then the impact on effective future returns may be limited.”

He adds: “The other main investment risks for pensions include plan charges, which reduce real returns through erosion of plan values; inflation risk, which reduces real returns; investment volatility, ie drawing benefits at a time when market volatility may be effectively working against an investor; and unsuitable investments."

To get the best outcomes, he says: “Simply put, advisers should undertake financial/pension planning to help a client understand their objectives and the overall risks that may work against a client’s overall plan.

"Reviewing any existing planning is also important, not only to take into account a client’s own individual needs, but also to take account of the evolution of the pensions world and the opportunities this may offer, such as reduced charges and increased flexibility.”