Firms should consider the consistency of the different communications that they are providing and what the client is likely to receive. When presenting cash flow modelling outcomes, firms should:

• be aware of differences in communications and the impact on consumer understanding of those differences; 
• explain why the cash flow modelling outcomes differ from those in other communications, including the inherent uncertainty in all projections;
• indicate how far the scenario outcomes are aligned with the client’s attitude to risk and capacity for loss; and
• be able to explain why different communications appear to show the client’s funds lasting for different amounts of time, if relevant.

Consider the outputs generated

Firms need to review the cash flow modelling outputs to draw conclusions about the client’s potential financial position before and during retirement.

These outputs are key factors to consider in the firm’s suitability assessment. 

If the firm fails to review the outputs:

• the cashflow model given to the customer may be factually incorrect or misleading;
• it may recommend a solution that is not suitable for the customer’s needs or objectives; 
• there is a higher risk that the financial plan will not work out as intended; and 
• this raises the risk of misunderstanding and poor consumer outcomes.

When reviewing the cash flow modelling output, firms should:

• Consider how long funds last under the base scenario.
• Review the stress-testing scenarios and what they would mean for the client’s income in retirement against their expenditure needs.
• Consider how the model handles potential tax liabilities.
• Check how the software handles cases where expenditure is expected to increase in some years, for example for university funding or to meet specific expenses like mortgage repayment. The firm should consider whether there are surplus funds to meet such expenses. In particular, it should ensure the model does not presume the client can access pensions before the minimum pension age for these expenses. 
• Consider if there are benefits to the client paying more into a pension if affordable, for example to claim back child benefit, reduce their marginal rate of tax or to make early retirement more likely.
• Review whether aims such as paying off a mortgage can be met more efficiently by using tax-free cash or income from an uncrystallised funds pension lump sum withdrawal, for example.

Richard Cooper is business development manager at the London Institute of Banking & Finance