Retirement planning has undergone significant transformation over the years due to changes in pension regulations, tax treatment, and investment strategies.

Historically, HMRC emphasised that pensions were solely for providing income in retirement, but legislative changes have led to a shift in approach.

With further changes in the pipeline starting in April 2027, retirement planning has to evolve as the new landscape unfolds.

What’s happening in retirement planning?

The introduction of a drawdown in 1995, followed by a capped drawdown and flexi-access in 2015, facilitated greater flexibility in accessing pension funds.

Enhanced death benefits encouraged wealthier clients to preserve pension assets for inheritance planning rather than drawing income.

The government’s proposed shift to include unused pension benefits in estates for inheritance tax (IHT) from April 2027 will likely disrupt the backdrop again.

Clients must now align their investment strategies with their income needs, risk tolerance, and regulatory changes.

The four broad areas to consider

  • Annuities: A resurgent option – Rising interest rates have reignited interest in annuities as a stable income source, leading many advisers to incorporate annuities to cover essential expenses while using invested assets for discretionary spending. This hybrid approach balances security with growth potential.
  • Natural income investing – Some clients prefer an income-focused portfolio, drawing dividends and interest rather than selling assets.This provides a relatively predictable income stream, but yield levels and costs must be carefully considered.For example, the main UK index currently yields around 3.49%, but after adviser and platform fees, net income may be closer to 2%, which, in isolation, may not be enough.
  • Growth-focused investment with drawdown—Many advisers maintain portfolios like those used during the accumulation phase, with an emphasis on long-term growth. However, with this approach comes sequencing risk—withdrawals during market downturns deplete assets prematurely.Addressing capacity for loss and stress-testing withdrawal strategies can help mitigate this risk. The FCA’s Retirement Income Review urges advisers to reassess clients’ risk attitudes post-retirement.
  • The bucket strategy involves segmenting assets into short-, medium-, and long-term allocations. Typically, cash reserves cover immediate expenses, with diversified investments addressing medium-term needs and equity-heavy portfolios catering for long-term growth. Regular rebalancing ensures liquidity, but performance drag from excessive cash holdings and coordination with discretionary managers can be challenging.

How can we navigate the future of retirement planning?

With proposed IHT changes on the horizon, advisers must reassess the optimal order for drawing retirement income.

This may mean prioritising pension withdrawals or leveraging alternative assets.

By carefully considering risk, income needs, and regulatory shifts, advisers can adapt to an ever-changing landscape and craft a framework that provides financial security.

One concept that seemed promising was a packaged product combining invested assets with annuities.

This allowed unused annuity income to be reinvested tax-efficiently.

Despite its potential benefits, uptake was limited, with many advisers preferring to manage the strategy themselves using separate products.

Read why Annuities are more important than ever

Read more about Pensions & Retirement from Moneyhelper

True innovation in this space remains a challenge.

Even if an investment manager develops a solution that provides 4.5% income after charges, most advisers would hesitate to recommend it.

Without a solid track record, the reluctance to embrace untested strategies limits the pace of change.

For many, pensions remain the primary retirement savings vehicle. They offer attractive tax advantages, but alternative options such as ISAs and property investments should also be in the mix.

ISAs offer much greater flexibility, but their accessibility can also be a weakness if funds are depleted too early.

What’s the best retirement planning approach?

A well-diversified growth portfolio aligned with the client’s attitude to risk remains a strong strategy. With assets invested for long-term growth while units are cashed in as needed.

Regardless of the model, the key lies in regular reviews – adjusting income and aligning with changes in risk appetite.

Retirement planning isn’t a one-time decision but an ongoing process of monitoring and adapting.

Please feel free to contact us today if you’d like to discuss your retirement plans.