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Keeping an eye on your retirement income

Keeping an eye on your retirement income


Date published

The Financial Conduct Authority (FCA) is currently reviewing the retirement advice market, with the results due towards the end of this year. The regulator sees this area as a priority given how large the market is and the potential for poor outcomes.

The FCA will assess the advice consumers are receiving through two main lenses: client outcomes and income sustainability.

Client outcomes

The new Consumer Duty being introduced at the end of July sets higher and clearer standards of consumer protection across financial services. It also requires firms to put their clients’ needs first.

When it comes to retirement income, advisers will need to answer a range of questions.

  • How can they demonstrate they’re providing the right products and services to meet their clients’ needs in retirement?
  • Do these products and services achieve the right client outcomes?
  • Although convenient, is the technology being used too complex for some clients to understand?

The FCA’s assessment will determine if advisers are focusing on delivering good customer outcomes within their client strategy.

Income sustainability

In 2021/2022

The number of pensions savers who accessed their savings for the first time increased by 18%.

The number who chose drawdown increased by 24% year-on-year to 205,641.

40% of regular withdrawals were at an annual rate of over 8% of the pot size (compared to 43% in 2020/2021).

(It should be noted that only a third of pension savers took regulated advice.)

Retirement planning is complex and there is an expectation gap between how much people believe they can sustainably take as an income in retirement and the reality. Often, people have to find ways to squeeze a little more from their portfolio or somewhat downgrade their lifestyle in retirement to plug this gap.

Ensuring a sustainable retirement income is built into our client processes. All our clients in retirement receive a commentary around their pension withdrawal rate in their Annual Planning Report. This lets us regularly review the sustainability of their current income levels on a regular basis. The ongoing cost of living crisis and the impact of inflation are leading to changing consumer needs so frequently reviewing our clients’ retirement income will majorly reduce the chance of anyone running out of money.

Busy times

As part of their evidence gathering for the review, the FCA sent a group of randomly selected advisers a survey and guess what? We’re one of them! This is an important subject and of course we want to play our part in improving market conditions around retirement income. But the survey contains 87 questions across 14 sections and has to be returned within three weeks. It’s frustrating that the FCA have sent out something which requires a lot of time and effort to complete just as we’re also trying to get our Consumer Duty project finished. We can’t help feeling they didn’t really stop to think about how these things impact small firms like ours.   

Several cups of tea later and much digging into data, we’ve completed the submission, allowing us to get back to actually giving clients good quality advice about their retirement!