Mike Morrison, head of pension development at AXA Winterthur Wealth Management, gives his view on the murky world of financial planning for retirement.

Have you ever noticed that there are a few words used, often in a conference speech, where the speaker apologises for using it, expressing some dislike of the word but then cannot come up with anything better!

“Holistic” is one of them, no one likes it but it does its job perfectly. Another which is appearing more and more in the pensions world is “decumulation”, used to describe the options available in using money that has previously been saved (this is as opposed to “accumulation”, which is the act of saving).

Decumulation may not mean much to the average man on the street but is a useful word to use as an alternative to retirement.

As I mentioned last month, retirement planning is an area not affected by the anti-forestalling rules in the Budget and it is likely to become a real growth area over the next 10 years as a result of baby boomer retirement demographic. 

So it comes as no surprise that this is an area of focus for the financial planning industry –both product providers and advisers. These days, new products are likely to be retirement products in the pension world, annuity contracts, drawdown contracts or scheme pension contracts and in other areas, contracts such as equity release and long-term care.  

Product development is very much focused on consumer feedback and consumer testing and, therefore, asking people about how they plan to live when they stop working is an obvious area for feedback.

The Association of Independent Financial Advisers (AIFA) recently launched a substantial piece of work on this subject – “Financial Planning through Retirement” – which recognises the special nature of the advice pertaining to retirement and which calls for a range of initiatives, not least a glossary of plain English terms alongside a programme of financial education and a “joined up regulatory and public policy approach to decumulation”. 

Decumulation is a complex area and the decisions taken can often be long-term and irrevocable. Not only is it the individual’s resources and their own personal circumstances that need to be taken into account, but some of the external environmental factors, such as longevity and inflation.          

We need to educate consumers in some of the vital concepts, attitude to risk, investment volatility, how an annuity works and so on, so that they can understand the overall picture.

Add to this a little bit of assistance from the legislators and the regulators, and we might be able to design products that really meet client needs.

There has been a strong move in the financial services market for advisers to have a robust investment process and I am rapidly reaching the conclusion that advisers that want to succeed in this market should also have a robust “decumulation” process. 

More from Mike Morrison:

The Budget's impact on pensions
ISAs vs pensions
The future of SIPPs