Tony Hicks, Head of Sales, Copia Capital

This article is intended for regulated financial advisers and investment professionals only. Wealthtime and Copia Capital do not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.

When the FCA published its thematic review of retirement income advice at the start of last year, it sent a clear message to advice firms: for most clients, the decumulation phase will demand more than a continuation of their accumulation strategy. Advisers need to ensure that retirement strategies are tailored to the needs of those in decumulation, consider the sustainability of income, and align with the Consumer Duty principles of delivering good outcomes for clients.

Now the regulator has provided examples of good practice and potential areas of improvement for firms providing retirement income advice[i]. While it is reassuring to see that the good practice outweighs the bad, the FCA continues to identify areas of poor practice. It highlighted firms not collecting detailed enough information on  the client’s financial situation, failing to assess the client’s risk profile sufficiently under the changed circumstances of retirement and inadequately managing the sustainability of income withdrawals.

The changing landscape

The introduction of first auto-enrolment and then pension freedoms has transformed the retirement landscape over the last decade. Membership of defined benefit schemes has fallen dramatically in favour of defined contribution (DC) schemes. Auto-enrolment in particular has boosted the number of employees who are now a member of this type of workplace scheme to more than 20 million[ii].

There have never been so many options when planning for retirement, but with greater choice comes greater complexity. Clients face daunting decisions as they transition from working and accumulating wealth to retirement and taking an income. And these aren’t ‘set-and-forget’ choices. Increasingly, retirement is an ongoing journey, and the FCA expects advisers to consider the client’s changing client circumstances throughout later life, as well as the impact of specific risks like longevity and sequencing risk on their finances.

Suitability remains a central theme, and every retirement income recommendation should be underpinned by a thorough understanding of each client’s attitude to risk and capacity for loss. Our research with the lang cat last year, immediately prior to publication of the FCA’s thematic review of retirement income advice[iii], revealed that only 17% of firms employed a dedicated Centralised Retirement Proposition (CRP) separate from their Centralised Investment Proposition (CIP) and just 3% used bespoke retirement portoflios. A staggering 80% utilised identical model portfolios for clients in both the accumulation and decumulation phases.

While the FCA doesn’t mandate the use of a Centralised Retirement Proposition (CRP) that is distinct from accumulation-focused CIPs, it does expect that decumulation advice addresses the unique needs of retirees. The thematic review, and the subsequent examples of good practice, highlight the need to consider clients’ current and future income needs in retirement when making a personal recommendation. Under the Consumer Duty, advisers must ensure that clients receive advice that delivers good outcomes, particularly in complex areas like retirement income planning. Simply repackaging accumulation strategies is not enough.

Unsurprisingly, when we surveyed advisers in October last year, those with a dedicated retirement proposition had almost doubled. One in three (29%) of respondents had a specific CRP and 7% used bespoke portfolios for those in retirement, while the number using the same CIP for clients accumulating and decumulating had dropped to 64%[iv].

The role of advice

Advisers are uniquely positioned to guide clients through the complexities of retirement. From determining how much income to draw, to selecting appropriate investment strategies, the adviser’s role has never been more critical in delivering good outcomes. There is clearly an important role here for DFMs and platforms in supporting advisers with investment solutions that mitigate decumulation risks and provide a sustainable income throughout later life, and at the same time function operationally for the firm. We’re starting to see this reflected in innovative on-platform products that use guaranteed or smoothed investment products.

Consumer Duty requires that, for clients in retirement, firms must gather detailed client information, accurately assess risk, and adopt strategies that address specific decumulation risks to ensure sustainable income withdrawals. The Regulator’s latest follow-up to its thematic review serves as a timely reminder that a one-size-fits-all approach isn’t good enough. Retirement income advice is a continuous process, demanding regular review, flexibility, and an ongoing understanding of each client’s evolving needs.

You can find out more about our dedicated decumulation portfolio solutions here. Or, arrange a call if you’d like to discuss how we can help you manage your Centralised Retirement Proposition.

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[i] https://www.fca.org.uk/publications/good-and-poor-practice/retirement-income-advice-good-practice-areas-improvement

[ii] https://www.gov.uk/government/statistics/workplace-pension-participation-and-savings-trends-2009-to-2022/

[iii] https://www.wealthtime.com/life-at-wealthtime/press_releases/use-of-centralised-retirement-propositions-almost-doubles-following-thematic-review-finds-wealthtime-and-copia/

[iv] https://copia-capital.co.uk/wp-content/uploads/2024/11/Rethinking-retirement-roadshow-poll-result-press-release.pdf