Alongside risk, the adviser needs to have an understanding of what their client is budgeting for.
Peter Bradshaw, national accounts director at Selectapension, maintains this is where a cashflow analysis can be useful, as well as a demonstration of what retirement actually means.
Clients in accumulation will still need regular reviews with their adviser, of course, which can be an opportunity to tweak their portfolio.
Mr Bradshaw suggests for a client with a more hands-off approach to their investments, there are options.
“If they’re not that engaged on a regular basis then there are lifestyling funds that, as you get closer to retirement will change the asset mix to more deposit, gilt-based and bond investments, rather than equities to safeguard your gains over time,” he explains.
Keeping on track
Adjustments will need to be made to the accumulation pot the closer the client gets to retirement, with Ms Tonry believing diversification at this stage is necessary – particularly in a lower interest rate environment.
She sets out: “Our 2018 long-term capital market assumptions for 2018 indicate that a 60/40 [equities/bonds] balanced portfolio would expect to achieve just 4.1 per cent in average annualised returns versus 8 per cent in 2009.
“In this kind of environment, helping savers to access different asset classes and broaden their sources of return will be critical. A more diversified journey to retirement also helps to mitigate volatility, which can often spook savers and even cause them to lower or stop saving.”
Stephen Lowe, group communications director at Just, emphasises: “With pensions, it’s important not to lose sight of the objective of using the fund to generate sufficient income to live off in later life, whether that is taking money directly from the pension or using the pension fund to buy a guaranteed income stream.”
But he issues a warning: “Flexible retirement gives the opportunity to stagger income over a number of years but savers still need to be careful that their plans are not derailed by volatile markets just at the point they need to start using the money.”
A downturn in markets at the point the client goes into drawdown can have a long-term impact on the savings they have built up by that point.
Mr Lowe says: “Switching from saving into a pension to drawing an income from it does require a different mindset where the individual is relying on the fund to maintain their living standards.
“Pension savers are helped by the ‘backwind’ of contributions into the fund which can take advantage of dips in the prices of assets, building up the value of the fund. In contrast, retirees face a ‘headwind’ where taking income at the same time as asset prices are falling can rapidly deplete the value of the pot.”
