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Income sustainability now and future concern

21 May 2020

Sustainability of income in retirement is by far the main concern of clients in the current crisis and for the foreseeable future, new research from FE Fundinfo has shown.

The majority of advisers (71%) identified sustainability of income as their clients’ chief concern for retirement, with preservation of capital (21%) being the only other significant factor.

However, Rob Gleeson, FE Investments, said the question of sustainability may need to be reconsidered in the wake of the Covid-19 pandemic.

Gleeson said: “The most important question the industry should be asking is ‘what is sustainability of income?’ We are finding that even for those with large pension pots, they are not generating levels of income which might have been expected. In five years’ time we hope that this will have changed and IFAs will have much more experience in adjusting their clients’ retirement thinking into what sustainability of income looks like.

“With the markets experiencing high levels of volatility in the wake of the Covid-19 pandemic, sustainability of income is likely to become even more of a worry amongst post retirement investors. It is therefore crucial that as an industry, we provide transparency to shape their thinking and deliver a clear understanding of how to meet their investment goals.”

The research found that the number of advisers adopting centralised retirement propositions has risen, with nearly half (49%) of advisers now having a CRP in place, up 14% on 2019.

DB transfer concerns

The research also reflected that advisers are growing increasingly wary of defined benefit transfers as regulatory costs rise amid the FCA’s focus on the market.

Over half (55%) of advisers have altered the way in which they handle DB transfers, while nearly a quarter (24%) have stopped advising DB clients altogether.

The findings revealed that 11% have increased their charges for DB pension transfer services, while nearly one in 10 (9%) said they have developed a specialised proposition especially for these clients.

Professional Indemnity insurance was singled out among advisers as the major barrier to offering DB advice.

David Scholes, FE fundinfo, said: “The cost of running an advice firm is increasing year by year. In many cases this is largely down to PI insurance, where it’s not uncommon for PI fees to have increased significantly over the years, particularly for those firms providing DB advice. The whole area is riddled with potential lawsuits, and PI providers are exiting the market, leaving fewer to offer the cover and that itself pushes the prices even higher.”

 

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