Showing Your Working Out

  • iPipeline

By Paul Yates, Product Strategy Director, iPipeline UK.

When I started my career in the pensions industry many years ago (after a short period managing post-punk bands which left me with a hefty overdraft), I had the pleasure to work for and progress under John Page, a great pensions’ expert and mentor who helped me reach the position of Pensions Technical Manager.

Amid the myriad complex retirement planning exercises we undertook – often for high profile people – John instilled in me the importance of research and showing ‘my working out’ when recommending a retirement strategy. This took me back to my school days when I was forever berated for not doing this in maths classes, although this time I listened.

I have since forgotten most of what I learnt in my pension days, but I have retained the habit of documenting and explaining how I have come to identify and recommend a strategy. These ‘working outs’ help my ‘clients’ on the Board understand the options they have open to them and enables us to agree on a way forward. It also helps us review and tweak or even pivot as circumstances change.

This brings me to the often overlooked and unloved subject of annuity. Don’t worry, I am not here to push annuity sales. I am no longer qualified (literally) to do this, nor do I have any vested interest in doing so. But I am going to implore everyone to ensure they do the research, document the options and talk these through with clients. I know that most do this well, but there are three areas I would like to specifically point out that I believe require focus:

1 In April, the Financial Ombudsman Service ordered an IFA to pay compensation to a client after the firm gave unsuitable advice about an annuity which resulted in the client’s beneficiary missing out on payments when they died three years later. This was due to the IFA not having evidence that it quantified the income for a 10-year guarantee option versus a five-year one. It wasn’t because the firm hadn’t discussed it – it was because there was NO evidence of the ‘working out’.

2 Correctly, the above case was written to an enhanced annuity. It is important that we take account of the client’s health when advising on annuities. But, more than this, we should be taking account of it when discussing drawdown versus annuity. Quantify and evidence the income from the appropriate annuity when comparing against income from a drawdown.

3 Retirement used to be a one-off decision for most clients – it was what type of annuity with which options and guarantees. Today, for those who opt to draw down (or delay vesting), it is a continual process that requires reviewing, tweaking and potentially pivoting. As such, it is important to ensure you are regularly showing and evidencing the options your client has (including annuities), especially as their health and income needs change.

Hopefully, these recommendations will not only help you ensure your clients continue to fully understand their options, but also help you show ‘teacher’ that you did a great job…if required.