Tax complexity has risen to the top of the agenda for retirement planning, according to new research from AKG, part of Defaqto.
Almost half (47%) of advisers cite tax complexity, inheritance tax, estate planning and intergenerational wealth transfer as the factors with the greatest influence on retirement advice.
A similar proportion (46%) point directly to changes to the inheritance tax status of pensions, while 42% cite clients living longer and concerns about money lasting throughout retirement.
The findings form part of AKG’s new Centralised Retirement Proposition themed industry research briefing ‘Seeing the bigger picture: The evolution of CRPs.’
Matt Ward, communications director at AKG, said: “Next year’s changes are forcing advisers to broaden their considerations and planning with clients beyond the more normal, and still crucial, retirement planning factors like longevity and running out of money.
“Hence CRPs and retirement planning frameworks – whether advisers formally identify as using one or not – are having to quickly adjust and become more focused on intergenerational planning as well.”
The research found that formal CRP adoption is limited, with just 16% of advisers reporting having a formal, distinct CRP in operation.
Most commonly, 26% report having a consistent centralised approach to retirement advice not described as CRP. Just 5% are currently developing a CRP with the view to launch it in the next year, while 1% are developing one but plan to launch it beyond that time frame and 7% are considering developing a CRP. Meanwhile, nearly a fifth (18%) of advisers say they provide retirement advice on an individual case-by-case basis, while 23% are not considering developing a CRP.
Ward said: “We conducted this research because the timing was right to re-explore CRPs given the backdrop to retirement planning for clients continues to evolve.
“Pension freedoms disturbed the natural order and style of accessing pension assets and now forthcoming IHT changes are further impacting on approach to accessing pension and other assets. Innovation and choice in annuity, drawdown, platform, bonds and MPS solutions also mean advisers should continually review all the options on the table for clients.”
The research also looked at retirement income strategies and found that when constructing strategies for clients, 62% use the approach of holding a cash reserve or cash buffer and 61% take the approach of combining drawdown and secure or guaranteed income. Just under half (47%) opt for using fixed-term or lifetime annuities and 40% prefer regular encashment of units across the portfolio.
However, a quarter (26%) of advisers feel that integration between platforms, cashflow modelling and adviser back-office systems constrains their preferred retirement approach. A fifth (22%) feel provider servicing and administration also causes impacts.
Looking ahead at advisers’ priority areas for the development of retirement propositions over the next two to three years, reducing costs of delivering retirement advice (24%) and using AI or automation within the retirement advice process (23%) were the top two.
These were closely followed by developing blended approaches combining drawdown and secure income (21%), improving income-sustainability assessment and monitoring (21%), and developing support for vulnerable, later-life, estate-planning and intergenerational needs (21%).
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