More than 60 per cent of financial advisers claimed there has been insufficient industry focus on decumulation solutions and predict this area will grow exponentially within the next five years.

More than four-in-five (86 per cent) expressed that the decumulation advice market will boom over the coming years, findings from Heartwood Investment Management revealed, the asset management arm of Handelsbanken.

The growing demand for decumulation advice – the conversion into retirement income of pension assets accumulated throughout an employees’ working life - comes as advisers warn of significant challenges facing clients seeking retirement income.

According to the study, advisers see the three largest challenges as managing market volatility (67 per cent), calculation a sustainable income (63 per cent) and longer life spans (55 per cent).

Furthermore, 85 per cent advisers reported that those clients entering decumulation were concerned about the impact of a disorderly Brexit on their retirement portfolios. Three-in-five advisers also stated their clients tend to over-estimate how much income they can safely withdraw from their investment portfolios, compared with just 16 per cent who said clients estimate approximately the right amount.

In light of this, the research highlighted the role of managing sequence-of-return risk, which, if not handled correctly, can have a “catastrophic effect” on the beginning of a decumulation phase when market lows combined with regular withdrawals can have a disproportionate effect on future income flow.

Commenting on the findings, Heartwood Investment Management head of product Matt Hollier said: “Decumulation has traditionally played second fiddle to wealth accumulation in the financial services industry but this must surely change. Our study details the impact that tough headwinds can have on the growing number of clients entering retirement with less robust strategies in place.

“Sequence-of-returns risk - the risk of getting poor investment returns in the early years of retirement - can be critical for clients taking an income from their portfolio. Simply put, if markets lose money in the early years, and clients are withdrawing an income, then they have a smaller portfolio to benefit from when the good years come along.

“Conversely, if the early years are strong, clients have a larger portfolio so when the bad years come later, the poor returns have less of an impact. Advisers need to address this risk within their dedicated decumulation solutions.”

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