Why a dose of reality is needed for pensions planning

  • To understand more about longevity risk
  • To learn how to communicate with vulnerable clients
  • To learn about the risks in managing retirement outcomes
Why a dose of reality is needed for pensions planning

Retirement is no longer the point when you make a one-off decision about how you will pay for your twilight years by simply selecting an annuity.

Post pension freedoms, in order for advisers to justify their fees they must assist their clients in grasping what the retirement income options open to them are and select the most suitable solution.

Rather than seeing their clients commit to an annuity, advisers are therefore facing longer relationships with their clients that last well into retirement.

For clients opting to remain invested or take tax-free cash or only partially annuitise their pot, it is vital they sit down again with their advisers to reconsider what they should do with their pots.

This means advisers are facing new challenges – they may increasingly have to handle clients with care needs or suffering from dementia.

This is why dealing with vulnerable clients has become a core focus for the Financial Conduct Authority (FCA) and advice firms need to make sure they have proper processes in place.

But how do you know if a client is classified as vulnerable?

James Dingwall, chief executive of Thistle Initiatives, said the first thing firms need to do is understand their current client base and what it looks like.

Advisers should try to identify where there may be customers who would fit into the definition of a 'vulnerable client', he said.

Quality of disclosure

  • 52.9 per cent of firms had provided acceptable levels of disclosure, while 41.7 per cent had offered an unacceptable level of disclosure in terms of their stated charges and service provision, according to a review by the City regulator.

The FCA defines a vulnerable client as “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”

Mr Dingwall said: "There is still a perception that someone who is a vulnerable customer is someone who has a disability or someone who is very elderly, but it can take so many forms, such as mental illness.

"Therefore, it is really important that firms understand their client base, know how to identify any vulnerable clients and understand how to educate advisers to deal with them and bring them into the financial planning remit."

In 2015, the FCA issued an occasional paper highlighting concerns that financial services providers were not treating vulnerable customers appropriately. 

In this document, the FCA stated: "We want to help firms identify consumers in potentially vulnerable circumstances, and to attempt to describe what ‘good’ looks like in serving those consumers."

Key Points

  • To justify their fees advisers will need to help clients grasp the full implications of all their retirement income options.
  • Proper attention to vulnerable clients is likely to be high on the FCA’s list of priorities. 
  • Advisers' potential conflicts of interest, in particular via DB transfers, is expected to play a key role in the regulator’s thinking

Since then, the regulator has been producing regular updates to ensure financial services firms are treating vulnerable customers appropriately and fairly. 

According to the regulator, advisers must now offer clients a choice of ways of communicating.

The watchdog said that communication should be designed in an inclusive way so that it is clear, easy to understand and meets client needs.

This could relate to the method of communication (for example, audio/braille/face-to-face) or the service delivery (such as agreement to talk at a particular time of day depending on carers and medication).

  1. What is longevity risk defined as?

  2. How does the FCA define a vulnerable client?

  3. How should communication for vulnerable clients be designed, according to the FCA?

  4. What does Mr Dingwall say is the first thing firms need to do in regards to vulnerable clients?

  5. What does Mr Richards say is the worst outcome for the public?

  6. What does Mr Dingwall say is important?

Nearly There…

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

You should now know…

  • To understand more about longevity risk
  • To learn how to communicate with vulnerable clients
  • To learn about the risks in managing retirement outcomes

I completed this CPD in

To bank your CPD please complete the form below.

What did you learn from undertaking this CPD exercise?

Why did you undertake this piece of learning?


Congratulations, you have successfully completed and banked this piece of CPD

Already Banked!

You have already banked for this article.

To bank your CPD you must or


One or more questions have been incorrectly answered,
 please review your answers and try again.

Please enter what you have learnt and why you completed this CPD.

More Pensions CPDSee my completed CPDSee all CPD