Yesterday I went for coffee with a senior contact from the asset management arm of a major pension provider. It’s always interesting to chat to a fellow pensions geek but I was really struck by one comment that he made. In his view, pensions are really just an enormous ‘feeder’ into retirement. Retirement is where growth will come in his sector – it’s where the action is.
We agree that there is enormous potential for product manufacturers, platforms and advisers to support consumers in their retirement aspirations and to make some money whilst they are at it. But we are still in a transition phase.
Experts have recently argued that platforms ought to be better geared up to pay natural income and monthly income payments to clients in decumulation.
We spoke to advisers to get their take on what they are looking for from a platform for their clients in decumulation.
They were not convinced that facilitating natural income or indeed monthly income payments via a platform is critical to clients. Most clients probably can’t live on natural income alone, particularly if they are required to pay the advisory fee from it. This means that many advisers we spoke to are using a pooled approach, consisting of two or three pools, for clients. One pool is cash. The next pool is typically lower risk investments, such as bonds, with a 2 to 5 year investment horizon. And there might a final pool of longer-term equity investments.
For immediate income needs, they told us that the client is most likely to withdraw 6 months to one year’s worth of income in one go and doesn’t need to hold this cash pool on a platform. So as long as platforms can facilitate this payment, there isn’t a problem.
However, we do think that platforms need to offer better flexibility. Many cannot facilitate the client taking a mixture of tax free cash and income in whatever combination they want. We would urge platforms to add this functionality onto the development roadmap.
If you want to delve deeper into how advisers are advising clients in decumulation since the pension freedoms, our ‘Advice in Decumulation’ report is out on Monday. And if you are interested to see how advisers rated their platforms this quarter, we have just published the Q1 Adviser Platform Guide.
Have a great weekend.