It's a gripping three year track record!

9 September 2015
Designed for taking income, the GRIPs hit their three year milestone.

This is an important milestone in the investment world; it means we now have a three year proven track record in good performance, governance and risk management.

What's happened over the last 3 years?

It's been a busy three years in the financial services industry. We take a look at what's been happening, the impact on drawdown customers and why choosing a suitable investment in drawdown is now more important than ever.

Why invest in the GRIPs?

The GRIP have been designed exclusively for taking income and now have a three year track record in delivering appropriate risk management and performance.  

Find out more

Adapting to pension freedoms

The financial services industry is no stranger to change but it certainly wasn't expecting the bombshell dropped in the 2014 Budget. With retirees no longer having to take an annuity, pension pots available as lump sums, and the promise of a 'guidance guarantee' in the form of Pension Wise, the industry was certainly given a shake.

However, being able to withdraw lump sums from pension pots comes with its own perils. It could result in a higher rate of tax if large amounts are withdrawn in the same tax year whilst the removal of the GAD limit also provides an income temptation that can be difficult to resist.

The impact on the remaining pot may not be immediately apparent but, if the withdrawals are significant enough, could have serious consequences.

Market movements

At the same time investment markets have been fairly volatile over the last three years and as a result we've seen several ups and downs.

The General Election, Greece, China, and uncertainty over interest rates and inflation are just a few of the factors contributing to a rocky market ride.

Market falls can be devastating for pension savings, especially if income is being withdrawn, as it can take longer to recover any loss. The result could be a pension pot that can no longer support the income your client has come to expect.

Charges

We also mustn't forget that ongoing charges can have a significant effect on customers' pension pots. A recent Which? report1 highlighted the difference in charges between providers, showing inconsistencies in pricing across the market.

High charges, coupled with regular withdrawals can result in a dwindling pension pot which may not last as long as needed, or not leave as much as expected at the end of the term.

Choosing an appropriate investment which can deliver income sustainability over time can be challenging.

The GRIPs now have a three year track record in delivering appropriate risk and return to investors as shown below.

Source: Lipper, 01/09/2015.

Past performance is not a guide to the future. Prices can go down as well as up. Investment returns may fluctuate and are not guaranteed so you could get back less than the amount paid in.

What are the GRIPs?

The GRIPs are designed for customers taking an income from their pension savings. There are five, risk targeted portfolios to choose from and they aim to deliver growth above inflation to support regular income withdrawals, whilst taking a level of risk consistent with the customer's risk rating.

Customers can now also access GRIPs when accumulating their pension savings, through the Target Lifestyle Strategy (Drawdown).

Five years from the retirement date the investments will gradually start to move into the GRIP appropriate for the customer's risk profile.

This straight forward process means that at the retirement date, the pension pot will be fully invested in the GRIP and ready for taking income.

Source

  1. Revealed: The true cost of pension freedom, Which?, 21 July 2015.
About the author

Janice MacLean

Investment Proposition Manager

Janice has worked for Royal London for 20 years with particular experience in the research and analysis of provider propositions.  Her remit is to develop the Royal London investment proposition, attend adviser events to discuss investment matters and educate her colleagues with music related trivia.

Last updated: 09 Sep 2015

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