Tony Hicks | Head of Sales, Copia Capital | 7 March 2024

For professional advisers only

Nearly half (49%) of working adults have changed their retirement plans because of the rising cost of living according to a new survey by the Pensions Management Institute (PMI)[i]. This research comes hot on the heels of analysis by the Pensions and Lifetime Savings Association which found that the cost of a basic standard of living in retirement has increased by almost 20% over the last year and now stands at £12,800 for a single person and £19,900 for a couple[ii].

These findings highlight the need for flexibility in retirement planning – it’s no longer a ‘one and done’ decision, but one that can evolve over time. The shape of retirement is changing, with many people working longer, but moving to part time work in later life. Office for National Statistics (ONS) employment figures reveal there were 130,000 more employees over 65 in the workforce in October to December 2023 compared to the same quarter of 2021, while analysis by Rest Less, a digital community for the over 50s, found that 42% of the UK’s part-time workers are over 50[iii]. People are also more reliant on defined contribution pension and investment growth to fund their lifestyle in retirement as access to defined benefit schemes declines.

The FCA is currently looking at how the industry meets the income needs of people in retirement in its thematic review of retirement advice. Part of the review has focussed on the way advice firms are managing income withdrawal strategies, investment suitability and risk alignment. Under Consumer Duty, the regulator expects investments firms to demonstrate that their Centralised Retirement Proposition (CRP) is suitable for clients drawing on pension assets.

In many cases, the same investment proposition will not be appropriate for both accumulation and decumulation. With people living longer and market volatility significantly impacting traditional investment portfolios, longevity risk and sequencing risk are far more important considerations when taking an income from your investments than when you’re still saving. These different risks call for different approaches to constructing portfolios to safeguard the quality of outcomes.

It’s likely that guaranteed income will play an increasingly important role in creating modern, flexible retirement plans that offer greater financial security in later life. While the popularity of annuities declined significantly in the wake of pension freedoms, for most people the need for certainty of income in retirement remains. In fact, the PMI’s research found that four-fifths (81%) of working adults valued a retirement income that’s guaranteed for life.

As an industry, we need to find more ways to support advisers in incorporating guaranteed income into retirement plans. Many clients would benefit from a secure income to cover their outgoings but also want to retain the flexibility of an investment portfolio that provides the potential for further capital growth to enjoy in the later stages of retirement, or to leave as a legacy.

Two innovative retirement income solutions

Just Group’s Secure Lifetime Income (SLI), which delivers a guaranteed income for life, is already available on the Wealthtime platform. As an on-platform asset, SLI can sit inside a SIPP alongside other uncorrelated investments, reducing exposure to sequencing risk and mitigating longevity risk. SLI provides a monthly payment into the client’s SIPP cash facility. Unlike an off-platform annuity, SLI income is paid gross. It can be used alongside other income sources to support their lifestyle but offers the flexibility for all, or a portion of, the income to be reinvested into the investment portfolio if it isn’t required by the client, either for future use or to enhance the legacy pot. Or if the client needs more guaranteed income, another SLI can be purchased to increase the amount coming into the drawdown account.

When arranging an SLI, your client’s health and lifestyle details could affect the amount of income they receive.  You can enter their details easily online. If their health and lifestyle information can’t be confirmed through medical reports, the plan may have to be cancelled. Inflation may reduce the monthly income over time.  

Remember, once an SLI has been set up, and the cancellation period has come to an end, your client won’t be able to receive a full refund of the purchase price. A cash in value is available for a set period but it will be less than the purchase price. Just like a traditional annuity, depending on how long your client lives the total income paid may be less than the purchase price.

Copia has developed an innovative decumulation solution using guaranteed income as an asset with its Classic Retirement Income Plus portfolio. This uses SLI in conjunction with a purpose-built investment portfolio managed by Copia’s expert team. As SLI pays a guaranteed income for the life to the client, fewer assets may need to be sold in unfavourable markets to generate income which allows the investment part of the portfolio to stay invested for longer. SLI is uncorrelated to the other investments, so the investment portfolio can also be weighted slightly more towards equity and alternatives and slightly less towards bonds, offering greater potential for growth without increasing the overall risk for the client.

You can hear more about how Copia and Just are rethinking retirement at our CPD-accredited discussions throughout the UK in April and May. Experts from across the industry will be speaking about different approaches when investing for retirement, as well as the impact of the FCA’s review on retirement income advice and our latest adviser research into retirement planning.

Book your spot at the roadshows and join the debate via our rethinking retirement hub.

This article and our roadshows are intended for professional advisers. Retail consumers should seek professional advice. This article does not constitute research, advice, or personal recommendations.

Please remember that the value of investments and the income from them can fall as well as rise, and you may get back less than you invest. Tax treatment depends on individual circumstances and may be subject to change in the future.

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[i] https://www.moneymarketing.co.uk/news/almost-half-of-working-adults-have-changed-retirement-plans/

[ii] https://www.retirementlivingstandards.org.uk/news/rising-prices-add-almost-20

[iii] https://restless.co.uk/press/number-of-people-aged-50-and-older-in-part-time-work-reaches-record-high/

Book your spot at the roadshows and join the debate via our rethinking retirement hub.

This article and our roadshows are intended for professional advisers. Retail consumers should seek professional advice. This article does not constitute research, advice, or personal recommendations.