Aegon research highlights the top 3 challenges concerning advisers when providing retirement advice in the coming year.
The top three challenges, according to advisers, are regulatory and tax changes, the impact of Covid on stock market volatility and client meetings, and balancing investment risk objectives with income needs in the face of macroeconomic uncertainty.
Aegon pensions director Steven Cameron says: “The sheer volume of regulatory and tax changes tops the list of adviser challenges when it comes to providing retirement advice. After the pandemic led to delays in consultations and regulatory changes, the push to catch up for lost time is creating a very congested roadmap of regulatory change as we enter 2022.
“The Chancellor’s approach to freezing the pensions Lifetime Allowance and Annual Allowance and the threat of possible further cuts is also seen as a particular advice challenge. The LTA limit has seen a significant reduction since reaching £1.8 million a decade ago and now sits frozen at £1,073,100 until 2025/26. While we hope any further short term changes here are unlikely, freezing these allowances particularly when inflation is at a decade high means more people could be dragged into paying more tax on their pension pot unless receiving careful advice.
“A small but notable number of advisers also see adjusting advice in light of the regulator’s evolving focus on ESG as a challenge to providing retirement advice. Responsible investing is expected to be a big theme this year with advisers playing a key role on building a wide variety of customer attitudes towards green and sustainable investing into their suitability assessments.”
Stock market volatility, according to advisers, will be a challenge for retirement advice in the coming year.
Cameron says: “Advisers highlight stock market instability as a challenge for retirement advice in the coming year. Both Brexit and the Covid pandemic have created significant market volatility in recent times. Advisers are adapting by moving to more dynamic tools to meet their clients’ objectives and provide sustainable income strategies amid expected continued market volatility.
“Covid restrictions have also caused disruption to face-to-face meetings which have traditionally been the foundation of the client-adviser relationship. While many clients have benefitted by accessing advice for the first time through new technologies, advisers note concerns over any further lockdowns as a challenge to providing retirement advice for some of their clients.”
In the face of macroeconomic uncertainty, it is necessary to balance investment risk objectives with income requirements.
Cameron says: “Advisers also highlighted the challenges of satisfying client investment risk objectives while also meeting income requirements during the ongoing high inflation, low-interest-rate environment. The challenge advisers face is ensuring income for retirees with low-risk investment appetites keeps pace with the rising cost of living, particularly given the low-interest rates on bonds. This is a particular concern for retirees with longer time horizons and those with smaller pension pots.”