Will your drawdown clients’ income last?

29 November 2018

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We consider income sustainability and how our drawdown governance service can help you look after your drawdown clients.

Recent figures from our drawdown governance service have shown that just under half of Royal London drawdown customers are taking an income that’s highly likely to last them for the rest of their life.  According to the figures:

47% of customers have more than an 85% chance that their income will last them for life.

 

While 53% have a higher risk of running out of income, it’s important to note that in some cases, customers might choose to use up the retirement savings from their drawdown plan. For example, someone who’s 60 years old might choose to use up the savings in their drawdown plan until other sources of income become available when they reach age 65.

Our view

Some drawdown customers have a high capacity for loss, so income sustainability isn’t  as important. However, it’s extremely important for others that they understand the risks of their money not lasting as long as they need it to.

What is our drawdown governance service?

Our drawdown governance service will help you engage with your drawdown clients by calculating an income sustainability score for them, tracking progress against their score every quarter and highlighting any changes. So you can easily identify clients who are at risk of not meeting their financial goals. 

As of November 2018, our service is used by 5,025 advisers across 3,078 firms.

Our heat map assesses the sustainability of different withdrawal rates over different terms:

heatmap
All values are calculated using a 1% AMC and using Governed Retirement Income Portfolio 3.

The figures show that over a 15 year term, a 6% withdrawal rate is highly sustainable. However, as the term increases this become unsustainable.

Customers in our drawdown governance service are invested in a variety of different strategies, with 30% investing in our Governed Retirement Income Portfolios (GRIPs). The GRIPs are a suite of five portfolios designed for clients in income drawdown, and portfolios are chosen depending on a client's attitude to risk. 

More information

Find out more information about our drawdown governance service, or talk to your usual Royal London contact.  

 

Last updated: 29 Nov 2018

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit royallondon.com.

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.