Article

Decumulation – it requires a different approach

Regulation and evidence of tailored solutions in decumulation is a top concern for financial advice firms as retirement income market set for stratospheric growth.

| 4 min read

The spotlight on retirement advice and income is intensifying for wealth and advisory firms. The FCA is scrutinising firms to ensure they offer robust and scalable retirement income advice propositions that differ from accumulation strategies, and address the new risks emerging throughout retirement.

Article summary

  • Rapid growth in the retirement market is driving regulatory and adviser focus on retirement income propositions.
  • Clients are demanding more support and engagement throughout retirement, according to advisers.
  • Embedding scalable and robust decumulation propositions has never been more important.
  • Centralised Retirement Propositions (CRPs) are critical for firms to support clients through retirement and these need to be tailored to mitigate specific risks clients face.

With an ageing population, the retirement market is poised for significant growth

The number of people aged 65 and over has increased from 9.2 million to over 11 million between 2011 and 2021. Defined contribution (DC) assets have grown by almost 30% since 2019, with the DC market estimated at £1.9 trillion and £220 billion in drawdown at the end of 2023. This trend indicates a growing need for decumulation advice.

Retirement planning also dominates client advice requests (90%), surpassing investments (65%) and tax planning (42%). The report indicates that clients are demanding more support and engagement throughout retirement.

Our latest report, Decumulation - it requires a different approach, explores insights from financial advice firms on the challenges of decumulation. It highlights how advice at the start of and during retirement differs significantly from accumulation advice, with firms deploying various strategies to address new risks such as spending uncertainty, tax changes, longevity, investment, and sequencing risk. The stakes are higher for clients who cannot recoup losses from income.

A consistent concern among advisers is the regulatory challenges in the decumulation phase. Firms must demonstrate that they are supporting their clients in line with Consumer Duty. This includes ensuring the right systems, processes, and controls are in place, and that adviser tools, such as cash flow modelling, support clients in decumulation.

The retirement landscape has evolved, requiring tailored advice for different client needs, as outlined by the FCA. With the shift away from Defined Benefit pensions, there is no longer a standard retirement path, necessitating product innovation and investment solutions to manage the various risks in decumulation.

Among the diverse solutions used by firms, from annuities to hybrid and bespoke strategies, the development of Centralised Retirement Propositions (CRPs) is of particular interest. Some firms have adapted their Centralised Investment Propositions to create CRPs, while others are developing distinct CRPs, encouraged by the FCA's endorsement of this practice.

In the future, it will be crucial for advice firms to implement centralised retirement propositions tailored to individual needs to support clients through retirement.

So while decumulation attracts significant regulatory scrutiny, it also presents a substantial opportunity for advisers and their firms to deliver innovative advice at this critical time in clients' financial lives.

Approaches designed for the accumulation phase will no longer suffice to meet all clients' needs.

Want to know more? Download the report today

Drawing on Alpha FMC’s independent research, this report explores various retirement strategies, including systematic withdrawals, annuities, and tax-efficient approaches. The research identified several key themes:

  1. Regulation – it is more important than ever for firms to evidence why their retirement proposition and income strategies meet the needs of target markets and individual clients.
  2. Opportunity – the transition from DB to DC pensions, demographic trends, and economic pressures will accelerate the growth in demand for more support and engagement through retirement.
  3. Transition – decumulation requires a fundamentally different approach to the accumulation phase.
  4. Approaches and strategies – there are multiple options for advisers to consider when advising their clients in decumulation with firms following very different approaches.
  5. Centralised retirement propositions – balancing flexibility with consistency is proving a challenge. How do advisers create robust centralised retirement propositions that support all clients’ needs?

Download the report

Growth in the retirement market is truly enormous and not to be underestimated. The Consumer Duty and Thematic review of Retirement Income Advice clearly shows that this is a priority for the FCA.

Sean Osborne, Group Head of Sales

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Decumulation – it requires a different approach

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