Why retirement income is at the forefront of the FCA’s attention

Life doesn’t stop still just because you are no longer working, so ongoing support and flexibility remain crucial. This is especially true for someone in retirement who may no longer have access to other income sources and can’t rely on changing jobs or receiving pay rises to boost their income.

Pensions freedoms in 2015 introduced a great deal of flexibility for pensioners when taking income for retirement. Too much choice can be a bad thing though, especially when consumers have more complex needs, so taking financial advice to navigate the choice overload can make sense for many people.

A recent report, Decumulation – why it requires a different approach, created by Alpha MC and commissioned by Charles Stanley, paints a very clear picture of an industry with several quite distinct approaches to meeting these challenges.

Why retirement income advice is in focus

The FCA’s Thematic Review on Retirement Income Advice in March 2024 put retirement income in the spotlight. The regulator re-emphasised this is October 2024 by writing that ‘all firms that provide retirement income advice should use our finding to review and update how they work’.

The verdict from the FCA’s review painted a mixed picture with good and bad practices across the market. Happily, it didn’t identify any systemic issues or widespread problems. Some firms had adopted a specific decumulation approach, but there were pockets where adviser firms were falling short of FCA expectations, for example around income withdrawals and risk profiling.

One of the FCA’s key points is firms must recognise that decumulation is different to accumulation, and firms must adjust the advice process to mirror that.

As a result, firms are now required to evidence why their retirement proposition, and their income strategies, have been deployed to meet the needs of their target client market and the need of individual clients. This is a change of narrative from pre–Consumer Duty in 2023 as the regulator’s new approach has shifted to an outcome-based method to regulation.

The FCA now expects firms to document what good outcomes look like for their clients. Firms also need to regularly monitor how these are being achieved, as well as identifying risk and mitigants to prevent potential harm. With this in mind, advice firms should expect more regular communication and engagement from the FCA moving forward in the form of data surveys, questionnaires, thematic reviews and targeted follow ups.

What does the adviser community think about the regulation?

Interviews with a number of different advice firms revealed that advisers are broadly positive about the new regulation, but recognise they face challenges ahead.

While some firms felt that this signalled the dawn of a new benchmark for firms to adhere to, others suggested the findings were a little less impactful. For some, the new regulation could mean a complete overhaul of their propositions and quality of processes. For others, it could be more about making small tweaks around the edge to refine and enhance: for example considering the use of cashflow planning for all clients in retirement.

The most common concern across all advice firms was centred around the ability for advisers to evidence that they are doing the right thing. This will require firms to ensure the right systems, protocols and controls are in place, especially for larger businesses with an extensive client book and therefore more outcomes to monitor.

Partnering with Charles Stanley

We understand the importance of building the right retirement strategy for your clients and the critical role this plays in the financial wellbeing of everyone as they enter their "third age".

Our aim is to support you by providing an adaptive and tailored decumulation strategy , and to provide insights and support for how to effectively manage your clients’ assets during the withdrawal phase of their financial journey.