Why firms are choosing a centralised retirement proposition

3 min read 22 Feb 21

The information contained in this page is for professional Financial Adviser use only.

As planning in retirement is becoming more complex – and more in demand – a growing number of firms are choosing to centralise and standardise their approach to retirement advice.

We’ve been plotting this trend over the past two years in the Centralised Retirement Propositions report, created in partnership with consultants NextWealth.

This year’s report, which surveyed 200 advisers cross the UK, shows that 50% now have a centrally-agreed approach to planning in retirement. Although many plans have been put on hold by Covid-19, a further 20% of advisers say they intend to introduce a Centralised Retirement Proposition (CRP) in the next 12 months.

Reasons for centralising

So why are firms choosing to centralise?  The main appeal appears to be the ability to determine each client’s retirement income in a systematic and sustainable way.

Cashflow modelling to estimate a client’s year-on-year income needs is featured by 54% of firms in their CRP, and by 78% of firms in their retirement planning generally. Of those firms with a CRP, 77% include a consistent strategy on client withdrawals, most commonly using a fixed rate or a withdrawal modelling tool.

Assessing risk

Determining clients’ tolerance for risk in retirement is also attracting a centralised approach: over half (59%) of firms include a specific attitude-to-risk questionnaire for retirement clients, while 46% include a tool to assess capacity for loss.

Just over a third apply a consistent approach to handling sequencing risk – the risk that the timing of withdrawals will harm the investor's overall rate of return, especially if portfolio valuations are falling.)

Other tools that are starting to feature significantly in CRPs are scenario analysis, using ONS data to assess life expectancy and – lower down the list – tax optimisation tools.

Benefits of CRPs

The perceived benefits of centralising retirement planning are also wide-ranging. Around a third (31%) of firms using or planning to introduce a CRP say the greatest benefit is what it can give to the client.

A fifth of firms think it improves business efficiency, and a further 11% think that centralising retirement-planning offers opportunity to improve business processes.

Meeting regulatory requirements and reducing risk are seen as the greatest benefit by just 18% and 14% of CRP users respectively. But as regulatory scrutiny of retirement advice intensifies, we anticipate these numbers will increase.

We’ll be exploring the 2021 report’s findings in further articles. But in the meantime, you can download the full report

Read more:

How advisers are investing for retirees

Keeping retirement planning centralised and bespoke