Pandemic demonstrates the value of retirement advice with demand increasing as clients reassess priorities
- Retirement advice is of significant importance to adviser businesses accounting for an average 58% of client assets
- 40% of advisers say demand for retirement advice has increased alongside the Covid-19 pandemic, with more clients considering their health and longevity
- The majority (90%) agree portfolios used for retirement have performed in line with expectations and few (6%) have changed their investment strategy
- Nearly half (47%) said clients viewed the market fall in early 2020 as a buying opportunity
Aegon and Next Wealth have launched a new report Managing Lifetime Wealth: retirement planning in the UK, which is a comprehensive guide to the key factors shaping the retirement advice market, covering everything from client trends to proposition and regulation. The research was conducted with over 200 financial advisers and supplemented with in-depth interviews.
An ageing population, the introduction of pension freedoms and the increasing complexity of managing retirement income continues to drive up demand for financial advice. Today, the research shows that on average, 58% of advised assets are for clients receiving retirement advice. This is expected to rise to 63% in the next three years.
This long-term trend has been supplemented by the pandemic, which 40% of advisers agree has increased demand for retirement advice (vs 13% who disagree). Over half (55%) of advisers agree it has caused clients to think more about their health and longevity while others pointed out it that many had re-evaluated their priorities as a result or started retirement earlier due to a loss of work. One adviser commented:
“We’ve had a few people who have decided to retire early or have taken redundancy...Some changing thoughts on lifestyle, with people not wanting to live in city anymore or looking at spending more time in rural areas”
While another said:
“A good extra 10% to 15% of clients are moving into retirement either early, having been made redundant or losing employment because they’ve had to close their company. So it’s a definite move this year. I’m hoping it will reverse but it’s noticeable at the moment that that’s what we’re doing”
The research also looks at the impact of Covid-19 on investment portfolios and highlights that for first time in a number of years market volatility and the possibility of sequencing risk have become real, rather than hypothetical risks in clients’ minds. Despite this, the vast majority (90%) of advisers say that the portfolios used for retirement have performed as expected.
Few (6%) have changed their investment strategy as a result of the pandemic and subsequent market shifts, although nearly half (47%) of advisers say that their clients viewed the stock market fall in 2020 as a buying opportunity. The value of advice was highlighted by the extensive use of cash buffers, which enabled clients to leave investments untouched and take income from cash when the market dipped.
Advisers report that the biggest business impact of the pandemic has been on new client acquisition. Nearly six in ten (56%) say acquiring new clients under the current conditions is significantly harder. This was higher among advisers servicing clients with smaller portfolios.
However, lockdown has presented new opportunities and 43% of advisers believe their businesses were more efficient in a virtual world, versus 21% who disagree with this. There was also evidence to suggest that clients had become increasingly confident moving from face-to-face meetings to digital.
Ronnie Taylor, Chief Distribution Officer at Aegon, comments:
“Retirement advice has become an increasingly important part of adviser business in recent years and the coronavirus has further highlighted the value of advice in this area. Alongside market volatility, some retirees will have experienced significant changes to their personal circumstances over the last year causing a re-evaluation of long-term goals or to think about their health more. For others, the market falls at the beginning of lockdown may have presented a buying opportunity while equity prices were depressed.
“These situations are often complex with lasting consequences and advisers are well positioned to help their clients navigate through periods of uncertainty. The research shows an overwhelming majority of advisers have seen the portfolios they use for retirement perform as expected, with cash buffers allowing clients to leave investments untouched during the market dip.”
Heather Hopkins, Managing Director of Next Wealth, comments:
"Financial advisers overwhelmingly told us that portfolios for retired clients performed as expected, despite the market volatility in the early months of the pandemic. This is good news. After more than a decade of steadily rising markets, financial plans were put to the test and for the most part, they worked.
“There is room for improvement. Too many advisers continue to rely on the ‘4% rule’ to determine a safe withdrawal rate. While it's good to see use of a fixed rate withdrawal strategy decrease from two thirds of advisers in 2018 to just over a third this year, we hope to see that trend continue as advisers adopt more sophisticated modelling tools."
*Aegon research with Next Wealth. Managing Lifetime Wealth: retirement planning in the UK Report. The research was conducted with 212 financial advisers between 3 and 11 December 2020
Notes to Editors
- In the UK, Aegon offers retirement, workplace savings and protection solutions to over three million customers. Aegon employs around 2,000 people in the UK and together with a further 800 people employed by Atos, we serve the needs of our customers. More information: www.aegon.co.uk
- Aegon’s roots go back more than 175 years – to the first half of the nineteenth century. Since then, Aegon has grown into an international company, with businesses in the Americas, Europe and Asia. Today, Aegon is one of the world’s leading financial services organisations, providing life insurance, pensions and asset management. Aegon’s purpose is to help people achieve a lifetime of financial security. More information on www.aegon.com
- Figures correct, January 2021