Financial advisers must utilise a “more scientific approach” to retirement planning, LV= has said.
LV=’s Navigating the retirement income challenge report, has highlighted the need for advisers to familiarise themselves with different methods to ensure they continue to meet the needs of clients following the 2015 pension reforms.
Published today, the report looks at the benefits and risk of two different approaches for advisers. The first is the traditional ‘probability-based’ approach which assess the chances of running out of money in retirement based on historical statistics. The second is a ‘safety-first’ approach which focuses on the individual and aims to remove any risk to essential income.
The second approach, LV= found, has increased in importance since the introduction of the pension freedoms in 2015 and so the risk of advisers making incorrect recommendations has also risen. This follows LV=’s finding that 46 per cent of advisers have never heard of this approach to retirement planning and only 17 per cent were confident that they know what it means.
Nonetheless, when provided with the definition of the safety-first method, a much larger 83 per cent said they would consider using it for clients with smaller posts, below £150,000.
The new report was written for LV= by FinalytiQ founder Abraham Okusanya.
LV= sales and marketing director Steve Lewis said: “The advent of the freedom and choice reforms has radically changed the pensions landscape and advisers need to recognise that what has long been the accepted practice for retirement planning may no longer be appropriate.
Okusanya added: “The UK retirement planning landscape has changed dramatically in recent years and many of the safety nets inherent in the previous regulatory system, such as the Minimum Income Requirement and Government Actuaries Department rates, have been removed. As a result, advisers have been thrown into a new environment and we must question whether existing practices remain fit for purpose. Understanding the implications of different philosophies is vital so advisers can help clients work out the best way to communicate their retirement income needs.”