What is the single biggest challenge facing retirees today? If you ask most financial planners I would hazard a guess that they would say it is making sure their clients’ money doesn’t run out before they do.
The world of pensions feeds on jargon for breakfast, lunch and dinner, so it is not surprising it has given birth to a new piece of vernacular: the centralised retirement proposition.
Before we even began to analyse CRPs for our cover story this week, we had to define what one actually is. Essentially, it a close relative of its cousin, the centralised investment proposition; standardised fund processes, but specifically designed for clients in decumulation.
No one is disagreeing that giving post-retirement clients investments that are better able to generate consistent income and cope with changes to inflation, interest rates and expenditure needs is a good thing.
But let’s also not forget that providers creating these solutions are doing so because they have skin in the game. It’s not all altruistic; the longer they manage a clients’ money, the more they make in fees.
Some CRPs will undoubtedly work wonders for advisers’ clients. But a word of caution: a pretty poor state of affairs would be for providers to set up lazy packages of “retirement-orientated” funds that would be lame ducks, but place an extra charge on the decumulation client’s assets. Even worse would be if they pull the wool over advisers’ eyes and succeed in pulling off a shoehorning exercise to get clients into the solutions even if they aren’t right for them.
These things work in cycles. We’ve had all sorts of new solutions come on the market over the past 15 years, only to fizzle out and be pulled in a matter of months. Due diligence is needed to sort the winning CRPs from the no-hopers.
But a more important point is one of aims, objectives and personal circumstances in retirement planning. We have become so fixated with the idea of retirees running out of money that we have forgotten that dying with zero can be a perfectly valid financial planning goal.
Some clients firmly believe that ‘the last cheque you write should be to the undertaker, and it should bounce’
What if I have zero dependents, no significant debts like a mortgage that need to be paid off and just want to get the most out of life before my health inevitably deteriorates? That client couldn’t care less about how his provider is planning to avoid sequencing risk, navigate their uncertain longevity and mitigate pound cost averaging – whatever the heck that is.
Some clients may well hold steadfast in their whole-hearted belief that “the last cheque you write should be to the undertaker, and it should bounce”.
CRPs are one possible solution to one possible problem. But they are not the only solution to the only challenge of retirement planning.