Tony Hicks, Head of Sales, Copia Capital
When the FCA’s thematic review of retirement advice landed last March, most advisers could be forgiven for breathing a sigh of relief. All things considered, it was fairly benign, with more examples of good practice than bad.
But, as the review highlighted, the issue of delivering a sustainable income in retirement is becoming increasingly pressing. The retired population is growing – accountancy body ICAEW estimates that the number of UK pensioners will rise by 14% over the next decade, despite an increase in the state retirement age from 66 to 67[i]. This demographic shift is reshaping the retirement landscape, increasing demand for sustainable income strategies.
At the same time, concerns are mounting over the risks consumers face when accessing their pension pots. Greater pension flexibility has also introduced or increased variety of risks, including longevity risk, sequencing risk, inflation, and investment volatility. The need for focused and suitable advice to help retirees maximise their retirement savings is more important than ever.
Changing investment landscape
While the review confirmed that most firms are doing a good job supporting clients as they approach and enter retirement, it found there’s still work to do, particularly in switching the focus from capital growth to sustainable income. The economic environment of very low interest rates and generally rising stock markets in the years following pension freedoms encouraged advisers away from annuities as a standard part of the retirement strategy. Instead, investing became the preferred way to generate retirement income.
However, that environment has changed dramatically. Over the past two years, we’ve seen high volatility, a strong correlation between bonds and equities in falling markets, surging inflation and rising interest rates. Against this backdrop, the traditional 60/40 equity/bond portfolio has struggled to support investors in decumulation. Some people saw their portfolios drop by 20% in the first year of retirement, forcing them to reconsider their plans entirely. According to Standard Life, 15% of retirees have either unretired or are considering doing so, with many citing income-related concerns such as rising living costs and insufficient pension income[ii].
With decumulation decisions becoming increasingly complex, the FCA’s thematic review reinforces the need to consider income sustainability throughout retirement. Thanks to improved annuities rates and growing demand for certainty over at least a portion of their income, guaranteed income products are once again being considered as part of the financial plan. We’re also seeing increasing interest in alternative strategies designed to deliver sustainable retirement income as part of a diversified investment portfolio within a SIPP.
Balancing Security and Growth
Blended retirement strategies, which combine guaranteed income with the potential for continued investment growth, are gaining traction as advisers seek more resilient income solutions. These products offer flexibility while ensuring the certainty of covering essential expenses. For example, a retiree might secure an annuity to cover core living costs while keeping a portion of their pension invested to benefit from potential market growth.
This approach allows for adaptability, whether that means maintaining a steady income, adjusting withdrawals based on market conditions, or modifying plans if circumstances change. With retirement journeys becoming increasingly individual, we expect to see more providers creating innovative strategies that provide a structured yet flexible way to balance security and growth, whatever retirement path clients choose to follow.
A year on from the thematic review, there’s no room for complacency. The FCA has already indicated its continuing expectations around the importance of high-quality retirement advice, particularly in the complex area of decumulation. While the industry has made great strides, there remains work to be done to ensure retirees receive the support they need. We all have a role in helping to deliver sustainable retirement income while mitigating foreseeable risks to consumers.
[i] https://www.icaew.com/insights/viewpoints-on-the-news/2025/jan-2025/chart-of-the-week-pensioners-on-the-rise
[ii] https://www.standardlife.co.uk/about/press-releases/the-great-unretirement
This article is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.
