What’s next for retirement
In our new series of ‘Let’s Talk Retirement 2.0’ we’re tackling some thought-provoking aspects in the challenging realm of retirement income advice.
What are the issues affecting retirement planning?
The demographic challenges of an ageing population and the economic challenges facing the country – high inflation, rising interest rates, volatile investment markets, a potential recession ¬– are creating a worrying back drop for advice.
We’re past the point of peak Defined Benefit (DB) pay-outs, so that longstanding underpin to retirement income is beginning to fail. Given Defined Contribution (DC) savings rates over the past 40 years are well below those historically put into a DB pension, a national problem is waiting in the wings for politicians to avoid or forestall.
What can be done?
There’s a possibility of our government establishing a Pensions Commission, given the structural challenges – in particular a need to harmonise incentives for individuals to save with the complexity of the benefits system. For the less well off, pension savings can be a costly mistake if it robs you of access to benefits.
Recent Labour Party statements suggest a win at the next election will bring changes to the policy framework and possibly the restoration of the Life Time Allowance This represents an immediate planning opportunity for advisers to discuss with clients.
What are the FCA doing?
The FCA has issued a ‘Dear CEO’ letter to all wealth managers demanding tighter oversight of their propositions and in particular more work embedding Consumer Duty in their firms.
They’re signalling a more robust approach to their supervision and looking at how retirement advice specifically is being delivered. Firms are on notice to tighten up all aspects of their propositional design, delivery and oversight. Above all, they need to have management information that paints a clear picture of how good consumer outcomes are being achieved - including what customers feel about the services they are receiving.
From reading the FCA’s recent letter of ‘price and value’, Tom noted that it’s incredibly important to examine your firm’s analysis of how it adds value. The advised customer receives a lot more from an adviser than simply an investment solution, so it’s rational to include all the effects of coaching, financial planning and decision support, as well as ongoing advice in your evaluation of your proposition.
Collective Defined Contribution ‘Decumulation Only’ schemes look to be an interesting development for advisers, but there are some real challenges arise in seeding, distribution and regulation – all of which need solving before they become widespread.
Our policy makers will need to relay the message that private retirement savings need to be material to do the job, signifying that the advice sector should remain buoyant. More people will need to save more money to retire well, as unfortunately the State won’t be on hand to make up the shortfall in expectations.
Join us for episode three
Episode three of Let’s talk retirement 2.0 kicks off at 11AM on December 12th when we’ll be discussing capacity for loss.
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Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.