The Financial Conduct Authority (FCA) has written to financial advice firms asking them to review their processes when providing retirement income support, after its thematic review revealed a “mixed picture” in the retirement income advice offered.

The FCA's review found that some firms had evolved their approaches and adapted to the post-freedoms landscape, and had clearly detailed processes, specific training on decumulation and used a range of tools to help illustrate complex information for customers.

However, the FCA clarified that, in several areas, it was apparent that not all firms were taking account of the differing needs of their customers in decumulation, as opposed to accumulation.

This included where firms operated in a way unlikely to lead to good customer outcomes by not considering a sustainable level of income to support retirement and some instances of firms not providing the right information to customers.

It also identified "considerable differences" between firms in advice file record keeping, revealing that 10 per cent of the advice files it received from the advice firms int he review missing key documents, and were therefore unable to be assessed.

Of the files the FCA was able to review, 45 files (67 per cent) were found to be suitable, while 15 files (22 per cent) had material information gaps (MIGs), and also could not be fully assessed.

While most of the advice files reviewed showed advice provided was suitable, the FCA expressed particular concerns around the suitability of the advice given in seven files (11 per cent), identifying issues around a loss of guarantees and features, penalties incurred and unnecessary charges or tax, with some customers also not given information about relevant options.

The FCA also found that some firms were not assessing capacity for loss (CFL) for customers, warning that a failure to consider CFL in decumulation means firms may not be correctly identifying suitable income or 10 investment-based solutions, which could prompt customers to take on more risk than appropriate and enduring reductions to their income that they cannot withstand.

The review did not consider files against the requirements of the Consumer Duty since it was not in force at the time, although the FCA did assess how firms were planning to comply with the duty after 31 July 2023, when it came into force for existing products and services.

This showed some firms had taken steps to prepare for the duty, including specifying their target market and recording how the firm’s service had been designed to meet the needs, characteristics and objectives of their customers.

However, the FCA noted that it is unlikely that most firms would comply with some requirements of the duty without taking appropriate action to address the broader concerns raised in the review.

In particular, the FCA stressed the need for firms to ensure they are complying with requirements to deliver good outcomes for retail customers, and cross-cutting obligations for firms to act in good faith towards retail customers.

It also encouraged firms to ensure they comply with the retail outcomes rules and guidance on firms’ conduct in relation to products and services, price and value, consumer understanding and consumer support.

Looking ahead, the FCA stressed that "retirement income advice remains a focus", confirming plans to carry out further supervisory work in this area to explore the scale of the issues identified and tackle any harms.

The FCA said it will also follow up on these findings with the firms involved, having already written to the chief executives of financial advice firms to urge them to consider and use the findings to review and update how they work.

The Dear CEO letter encouraged firms to refer to the questions in the data survey and take immediate steps to review whether they have appropriate management information and update their data collation processes and records accordingly.

To support this work, the FCA also published a new Retirement Income Advice Assessment Tool (RIAAT), developed for the purpose of the review to assess the suitability of advice files.

Alongside this, it shared an article on cashflow modelling, outlining the points for firms to consider when preparing and using a cashflow model.

Commenting on the findings, FCA executive director of markets and international, Sarah Pritchard, said: "Financial advisers have a vital role in helping consumers to make the right decisions now to support them long into the future.

"Decisions for consumers approaching retirement are complex, with the potential for risk. We want to support a sector that can help consumers access pension benefits, invest with confidence and have a sustainable income when they retire.

"Some firms are getting this right and making a real difference to their customers. However, others are not even getting the basics right and putting their customers’ futures at risk.

"We urge all firms to take on board our findings and review their own processes. Where they do not, we will act."

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