Changes to inheritance tax on pensions, announced by the Chancellor in her 2024 Budget, have become the greatest driver of change in the way advisers approach retirement advice amid rising client concern.
The findings are part of a retirement report by BNY Investments – Retirement Advice in the UK: Turning Insight into Outcomes, published in partnership with NextWealth.
The research, based on a survey of 207 financial advisers and 260 advised clients aged 55 and above, seeks to explore how retirement advice is evolving in practice and what this means for firms.
When asked to name the concerns they hear most often from retirement clients, advisers cited further and proposed tax change as the main worry (48%), ahead of running out of money before death (43%). This marks a notable shift from 2024, when running out of money was the top concern (50%).
Two in five (39%) clients state that the 2024 Budget changes have affected or will affect their retirement plans.
As a result, nearly three quarters (72%) of advisers said they plan to make changes to their advice approach in relation to inheritance tax over the next twelve months.
Gerald Rehn, head of EMEA distribution at BNY Investments, said: “These findings show advisers are shouldering considerable responsibility amid growing expectations from concerned retirement clients.
“High quality financial advice, delivered consistently and at scale, is critical to meeting growing demand and clients’ needs against the complexity of today’s retirement landscape. Our research shows advisers are moving decisively to evolve their retirement advice approaches and we are committed to helping them do so.”
Redesigning retirement strategies
Regulation as a whole is driving change across advice firms, the report shows. In the past year, 78% of advisers say their firm has made changes in response to Consumer Duty and 68% in response to the Retirement Income Advice Review.
Nearly half (48%) are reviewing investment propositions or model portfolios used for drawdown clients in response to the review. A slightly smaller proportion (43%) are updating client communications and suitability reports, while 40% are introducing or strengthening processes to monitor income sustainability over time.
For a third of advisers who have moved to a more common and consistent approach to retirement planning, meeting FCA expectations was the primary driver. However, more than one in three (31%) advisers are calling for clearer FCA guidelines on assessing and managing risk to income.
The report stated: “What emerges clearly from our research is that retirement strategies are becoming more sophisticated and more blended. Advisers are moving away from binary choices and default solutions, and towards frameworks that allow for flexibility while still supporting consistency, scalability and regulatory confidence.”
The report found the use of multi-asset and multi-manager funds has grown steadily to return to a five-year high. Outsourced model portfolios and smooth funds also continued to grow and many advisers now combine multiple elements to reflect different client objectives, time horizons and tolerances for risk. Over a third (36%) of advisers use both multi asset/multi manager and outsourced model portfolio services (MPS).
Additionally, advisers describe a step change in planning complexity as a result of incoming changes to pensions and inheritance tax. Strategies once reserved for much larger estates are now being considered for clients with more modest levels of wealth.
Guaranteed income solutions are being revisited not just as a way to meet spending needs, but as a mechanism to reduce exposure to inheritance tax. Advisers report a marked increase in annuity use, particularly where clients are unlikely to spend surplus wealth and face punitive tax outcomes if assets are retained.
There has also been a rise in gifting strategies.
“While often viewed as good planning for clients, advisers note that this can reduce assets under advice, increasing the importance of engaging the next generation and ensuring propositions are suitable for inheriting family members,” the report stated.
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