A withdrawal policy aims to set client expectations on how future income will be managed.
Setting out a plan of what will happen given some highly probable scenarios will help clients to understand that their income is not certain. It should also reduce the chance of them panicking if the market falls (or making the emotional and irrational decisions that can follow). It can also be used as the basis for your annual client review discussions.
As discussed previously, a key client benefit of pension freedoms is the ability to flex income to suit changing circumstances. The key benefit of a withdrawal policy is clear documentation of how you plan to meet the client’s goals by flexing their income over time. By demonstrating that you understand changing needs and showing how you will respond, you show your client that you are giving them flexibility and permission to spend. You are also helping them to understand the potential impact of using that flexibility.
It should also clearly document how you respond to external factors affecting how much money the client will have and how long it will last (for example, the impact on future income should the client's fund suffer from a significant fall in the stock market). There are two additional benefits to this:
All of this should demonstrate the value of your advice and reduces the risk of client complaints in the future.
The key steps to implementing a withdrawal policy are likely to include:
This core plan for withdrawals clearly demonstrates how you aim to meet your client's objectives.
The policy should: