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Advisers must align decumulation income needs with platform capability

Post the pension freedoms advisers need to assess clients’ retirement income needs and match them with platform capability, says Zurich’s Alistair Wilson

Under the new pension rules, effectively, advisers should “fling out their platform due diligence process and start again”, according to Alistair Wilson, head of retail platform strategy at Zurich.

He argues that since the Pensions Freedoms were introduced the way that clients need to access their income stream(s) and manage their savings and investments in decumulation on platform, has drastically changed and platforms need to be client-centric in handling the greater complexity now in the market. That requires advisers to ask new and specific questions of platforms during the due diligence process.

“The way we manage decumulation is now fundamentally different. Few financial advisers advise income-seeking clients in the same way that they did pre April 2015. Prior to pension freedoms typical advice was to buy an annuity for a steady, lifelong income stream. Now advice is likely to be for the client to keep their pension as intact as possible and to use their investments for income.

“This means flexible drawdown is an option for more people and savings and investments have to be managed throughout decumulation as well as in accumulation,” Wilson says.

Platforms, he adds, need to support advisers in delivering income, provide investment flexibility and adapt to clients’ lifestyle changes in retirement.

Income streams

If a client is holding their investments into the decumulation stage, which could last 25-30 years, then it is quite likely that they will have different attitudes to risk in respect of the money they are holding for each phase of their retirement, he suggests.

“They could have three phases, short, medium and long term, reflected in three distinct model portfolios within their pension and ISA wrappers, designed to provide different levels of income as they move through their retirement. Each time period would have a different attitude to risk.”

However, Wilson says, not all platforms will allow clients to hold more than one portfolio within their pension or ISA wrapper on the platform. “This can dictate how the adviser uses the platform and in turn restricts what they can do for their clients.

“Advisers need to consider whether they can run an effective income in retirement policy using a pension, ISA, GIA and cash, with the platform technology at their disposal.”

Cash account management

A further issue around income that adviser firms should factor in to their due diligence, Wilson says, lies in how the platform handles the cash account. “Some now require that up to 3% of a client’s pension or ISA wrapper is held in cash in order to meet payments out.

Where the adviser controls the cash account and there is insufficient cash in the account to pay out the income, some platforms will not pay the client the income until that is rectified, Wilson says.

“Ideally, a platform should be able to operate a process, agreed upon when setting up the income plan, so that should that situation occur, it allows the platform to auto dis-invest so the client receives their income on the day they are expecting it.

“For example, on the Zurich platform we offer the option to disinvest either across all the funds held, or the least volatile or the last fund into the portfolio. Advisers can mark certain funds as ‘treasured’ which means they should not be touched and the system will then ignore them as an asset when carrying out this process.”

On a simpler level, Wilson, says, advisers should also be looking at whether the platform can deliver what the client wants in respect of issues like income payment date. “Are platforms that can only pay income on a set date, which they determine, serving clients well?” he asks.

“A platform should be able to pay a client on the day every month that the client wants, not one that is convenient to the platform. If a client wanting to take income is told you can only have it on 9th of the month, that is dictating that the client arrange their finances around the platform rather than to suit the client’s own arrangements and lifestyle,” he says.

“It’s about setting up a service and a system that delivers what the client wants – regular and consistent income, when they want it.”

Wilson concludes: “It is important the platform has the ability to react to the changes in the market. Pension advice has been turned on its head by the pension freedoms and also the way that income in retirement is managed. How a platform operates has to reflect the increased complexity.

“Adviser due diligence must also reflect those changes and what they can expect of their platforms.”


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