Drawing and income close to natural yield and using low to medium investment risk can help a drawdown solution last a lifetime: new Defaqto case study

22 May 2017

Financial information business Defaqto has released a case study as part of their publications range, sponsored by Prudential, which provides an all-in-one document on drawdown. This case study forms part of Defaqto’s ever growing and comprehensive CPD accredited library of publications that are free to download off its website.

The publication gives an overview of the retirement landscape and reviews drawdown tools and solution supports for income in retirement. It also includes a mini guide that provides a point of reference for paraplanners and advisers alike.

Some of the topics covered include:

The value of considering both blended and hybrid options
How income modelling tools can help evidence suitability
A detailed understanding of the key risks to be considered including, longevity, inflation and sequence risk
How the location of where clients live can impact on their healthy life expectancy
A checklist to help evidence the suitability and compliance of advice
A mini guide to share and use with professional introducers

One of the interesting areas in the guide is the suggestion that drawing an income close to natural yield and taking a low to medium level of investment risk could increase the potential of a drawdown solution lasting for the duration of an investor’s lifetime.

What is clear from the guide is that drawdown is not straight forward and there are many pitfalls to be avoided. Drawdown is a continuous cycle which requires expertise in many different areas by the adviser: fact finding, suitability and timely, accurate changes. A comprehensive advice system, such as Defaqto’s Engage software, that has a variety of workflows designed to service a range of clients whether in the accumulation or decumulation phase provides a joined-up approach when considering potential solutions.

Richard Hulbert, Insight Analyst for Wealth at Defaqto, comments:

“With a third of people now opting for drawdown as a retirement solution the options need to be carefully considered. An income close to natural yield, with a low to medium investment risk can help to provide the income required during a life time. But of course, assessing the suitability is key.

“The skill of the professional adviser is paramount in being able to assess each income source for the client alongside their individual risk and the need for access, control and timing of the income from each product and asset type. Tools and support that provide information or resource in one place can only enhance efficiency and effectiveness. This guide provides an independent review giving advisers and paraplanners all they need to know when advising on drawdown income from pensions savings.

“A comprehensive advice system, such as Defaqto’s Engage, that has a variety of workflows designed to service a range of clients whether in the accumulation or decumulation phase provides a joined-up, compliant approach when considering potential solutions.”

Vince Smith-Hughes, retirement expert at Prudential, said:

“Managing income drawdown correctly is one of the most important job financial advisers can do for clients. Pensioners will often be tempted to draw down an income that will exhaust their retirement savings, and our research shows many advisers say this is the biggest threat facing their retired clients.

“Advisers need to ensure that their clients’ drawdown reviews are robust and take account of the natural yield or growth rate that a portfolio can deliver. They should include reanalysing their clients’ capacity for loss and attitude to risk to establish how appropriate the current income level is. They will need to balance the current income requirements against what income is sustainable, if that is a client objective.”

Download Defaqto’s new case study from the Resources section on their website http://defaqto.com/advisers/resources/publications-list/professionals-guide-to-drawdown-2017-18/