Let's get personal
Personal service is something we all appreciate. With our own unique aspirations and perspectives on life, our own quirks and foibles, we value being treated as intelligent individuals.
Pension reforms have created new opportunities for personalised financial planning as people transition from work into retirement. New flexibility has brought new complexity and increased the value of expert advice at such key stages of life.
Many clients accessing pensions will face a range of competing priorities – sustainable income to pay the bills, cash lump sums to spend or give away, continued investment growth, or wealth to pass on to heirs. Each client has their own attitude to risk and capacity for loss. Their personal circumstances, wealth, health history and lifestyle will differ. And the relative importance of each factor will evolve over time.
The need to treat clients as individuals is not just good business practice, but enshrined in regulation. The FCA’s Treating Customers Fairly outcome 4 says that where consumers receive advice “the advice is suitable and takes account of their circumstances”. And more specifically for retirement income, COBS 9.3.3 says advisers must consider all the relevant circumstances including “the client’s investment objectives, need for tax-free cash and state of health”.
This is an important area where Just can help your retiring clients by providing individually underwritten solutions, in many cases offering enhanced levels of guaranteed income for life and a fairer benchmark to judge other income options. And we can help your business too by allowing you to pass scrutiny by the regulator and your PI insurer.
Research we carried out last year among advisers revealed that fewer than four in 10 said their retirement advice process included the completion of the Common Quotation Form (since superseded by the Retirement Health and Lifestyle Form or RHF). Of the six in 10 who did not, a large number were making a potentially inappropriate decision based on their assumption the client would not “qualify” for an enhanced income.
Why inappropriate? First because the FCA is keen to address the problem it found that incomes up to 20 per cent higher were available to those shopping around to secure the best enhanced annuity rate. And second because today underwriting has evolved to the point it is sensitive to a wide range of factors, not just health and lifestyle but also details such as how tall or short and how heavy or light, and their marital status. No two people are alike so there are no “standard” rates or “qualifying” barriers. Instead, everyone is treated as an individual with a unique longevity curve and their own personalised income rate.
Old-style “are you in good health? yes/no” questions need to be rethought. A simple screener that can act as a prompt for further investigation should include specific questions about smoking, prescription medication, medical history, height and weight and weekly alcohol consumption. Advisers can access an example from our justadviser.com website along with other support material such as budget planners, tax and life expectancy calculators.
In a world of flexible pensions, why should clients still consider guaranteed income for life solutions? Well, life expectancy continues to rise and none of the old risks that come from volatile markets have gone away. Many clients will be keen not to risk covering their day to day living costs, using guaranteed income to supplement the State Pension up to the level of their personal “minimum income requirement”.
Guaranteed income can increase capacity for loss, releasing clients to be more adventurous with what is left. Once a basic income is secure, the rest can be spent, invested or given away – that’s true “pension freedom”. Guaranteed income offers a de-risking strategy from drawdown and the death benefits can now offer a range of “moneyback” options in the unfortunate event of premature death.
No single retirement income product can solve all the problems facing those at retirement. The only thing that can is a blend of solutions as part of a well thought out retirement plan taking account all a client’s assets including pensions, investments and the value tied up in the family home. Guaranteed income has a role to play because its value is not just financial – it offers peace of mind in uncertain times.