Commentary: FCA's retirement income advice review

William Marshall, Chief Investment Officer, comments on the FCA's retirement income advice review

11 Jan 2024

Skyscraper neighbourhood at night.

IFAs need to use outcomes-based analysis as a standard part of their retirement income planning process instead of relying on averages. Without this approach they could struggle to meet new requirements in the FCA’s thematic review of retirement income advice. We further warn that reliance on averages when making assumptions could lead to an incorrect prioritisation of certain information. This in turn could result in clients facing significant shortfalls in retirement.

The review will assess the quality of outcomes. It will specifically look at how advisers should determine and communicate sustainable income levels to their clients, including the potential risks. It will also assess how advisers calculate and communicate longevity related risks. To help IFAs compile the specific data that can be used to develop stronger outcomes-based analysis and comply with these regulatory requirements, we developed our Sustainable Income Tool. The tool provides client-level insights and also allows IFAs to align their advice processes to identify a sustainable level of income. A combination that helps them to better meet the individual needs of their clients.

Commenting on why outcomes-based analysis is central to planning sustainable retirement income, William Marshall, CIO, says:

“The FCA points out that more individuals are taking income from pensions that remain invested. For many IFAs this makes planning for a sustainable income that lasts throughout retirement even more complex. Reliable plans are dependent on strong outcomes-based analysis which, in turn, requires a foundation of robust data. Without this, advisers’ clients could end up facing a shortfall in retirement income. Advisers will be able to make significant improvements in planning for sustainable incomes if their analysis accounts for variables that are at client-level. These include elements such as a client’s specific investment portfolio or client-level longevity information, that can be made even more detailed by splitting the data to postcode level. By basing plans on such robust data, advisers will also have what they need to communicate effectively about the advice they have provided.

“For advisers who have capacity they can also implement portfolio stress and scenario testing. Both allow deep scrutiny of risk levels and a way for advisers to evidence that they avoid causing foreseeable harm.”