How to use Barrie & Hibbert's retirement tool

Most of the financial planning solutions we have reviewed to date have tools that the vendors will sell directly to IFAs as well as corporate organisations.

Voyant, Moneyscope, Financial Express Analytics and Morningstar Advisor workstation are good examples of selling to IFAs and small businesses.

However, some of the most powerful tools in the market are only available to advisers via product providers, platforms, nationals or networks as they are bespoke creations powered by powerful financial models such as those provided by actuarial practices and modelling specialists.

Barrie & Hibbert (B&H) is a company that is not as well-known as its market presence would suggest. It provides modelling tools to almost every major product provider in the UK to assess their own risk exposure and to design their own products. B&H is now replicating this success in America where it has signed nine of the top ten US life and pension product providers.

Many of these companies are now extending the use of the B&H models to create financial modelling tools for their extranets. UK clients that have chosen B&H solutions include Aviva, Standard Life , HSBC, Tenet and JP Morgan.

We spoke to John Higgins and David Campbell from Barrie & Hibbert to learn more about one of the recent modelling tools that it has developed for providers and networks advisers, an ‘At Retirement’ tool.

John and David believe the At Retirement space is currently underserved by financial planning tools. Advisers are provided with plenty of options for which tools to use in the accumulation of their pension funds but have little to help decide the most effective approach to managing the transition to retirement and how to optimise their income in retirement.

Should the client use income drawdown, standard annuities or variable annuities? What is the effect of using each solution (or combinations of solutions) and how do they help to reach the client goals?

Through focusing on such planning B&H can help advisers explain concepts such as longevity risk and the creation of ‘Glide Paths; a concept where clients gradually move funds to suitable investment vehicles as they approach retirement. The tool provides a framework to help advisers understand the risk and reward of the options they have available and it can iteratively model and test scenarios so that a client can better understand the implications of the choices that they have.

As you would expect, the process sitting behind the At Retirement tool starts by collecting the relevant client details, investment size and income objectives. Ideally, a client’s cashflow would be constructed to look at the early and later demands for income to meet lifestyle objectives and cope with changes such as care provision and any objectives for passing on a lump-sum legacy on death. That having been said, it is also possible to choose the target income levels without a detailed cashflow analysis process.

Act smarter

There is a real problem looming for many people coming towards retirement. With the decline in final-salary/defined benefit pensions, as well as generally low funding levels combined with poor annuity and savings returns, customers are going to need to think and act smarter with the funds that they have if they are to sustain their retirement income.

We looked at an example of the B&H At Retirement Planning tool at work where a customer aged 65 was entering retirement with a fund of £1m. The customer wanted a high chance of sustaining an income level of £55k with a minimal loss position of having to take an income of £45k. The customer wanted to have some access to capital to fund exceptional costs, wanted to benefit from the potential upside in the investment market and wanted to leave a residual fund on death… not too demanding then!

The B&H tool modelled the income profile that could be obtained from a conventional annuity, from pension drawdown and from variable annuities.

Probability parameters can be set within the tool to see whether the desired income and capital objectives are possible within acceptable tolerances. The results are presented showing the range of possibilities and which option or combination will most closely meet the customer’s objectives.