Income sustainability scores now updated - Q3 2020

25 November 2020
Every quarter, our drawdown governance service calculates a new income sustainability score for your clients, based on what's happening in the market.

The income sustainability scores for Q3 2020 have now gone live. Here’s an update on what’s changed.

A review of Q3

As the summer tailed off, markets generally showed continued recovery. The US stock markets outlined an upwards trend, particularly due to a technology sector boom and influences of a COVID-19 vaccine.

September was a more volatile month for US stocks as the presidential election neared. The uncertainty around a second US fiscal stimulus package is likely to have been a key driver in volatility, however markets still outperformed over the quarter.

The UK economy recovered as government intervention stimulated customer activity through the ‘Eat out to help out’ scheme and stabilised unemployment rates through the furlough scheme.

Towards the end of the quarter, markets began to react to a second potential lockdown as economic activity slowed. UK markets underperformed as the quarter came to a close, where there’s likely to have been some reaction to Brexit trade deal negotiations with the EU.

The diversified nature of our Governed Range provides some level of immunity to extreme impacts resulting from market volatility. In addition, RLAM's decisions to reduce exposure to UK equities since Brexit was announced and favour US and overseas equities have benefitted the Governed Range.

Global markets are likely to react to the evidence of a second coronavirus wave, the election of the Democratic Party in the US and progress with the UK Brexit deal – we therefore expect uncertainty to remain over the course of the year.

The significant market volatility we’ve seen through 2020 has highlighted the importance of tools like the drawdown governance service (DGS) to support client conversations on the long-term sustainability of their income plans and investment choices. It may bring about a need to re-evaluate client risk appetite and capacity for loss and our range of tools mean we’re well placed to support you and your clients in this area.

Model update

Model updates in June showed a reduction in volatility across asset classes in the midst of a recovering market. The forward-looking assumptions over Q3 show an increase to volatility across most asset classes as uncertainty continued over the quarter.

Lower asset returns are a continued trend this quarter, where clients are likely to see a fall in expected future fund values.

Current medium-long term gilt yields have increased slightly over the quarter, but still remain at historically low levels.

What does this mean for the DGS and client income sustainability scores?

Impacts over the quarter are expected to affect clients who are targeting an income for life (drawdown then annuity purchase) and income to age (drawdown to specified age). Lower expected future returns over the quarter will result in lower fund values and a reduction in income sustainability scores. This will be slightly offset by an increase in gilt yields.

Overall, clients may see similar or lower sustainability scores across all income levels, particularly for those who have longer income terms.

Our income sustainability houseview

Our houseview represents our current opinion on what would be a sustainable level of income for someone aged 65, just starting out in drawdown. Just starting out in drawdown is important here as the houseview doesn’t capture the impact of recent market turmoil on the value of pension savings and assumes that the individual's looking to use the savings they have to start drawdown over 25 years, investing in GRIP 3 with a yearly charge of 1%. 

This quarter we haven’t adjusted our view, so we continue to view 3.5% income over 25 years as highly sustainable. 

Our current view is that a 3.5% withdrawal rate is highly sustainable.


This may seem low, but the value of the drawdown governance service is its ability to provide visualisation on the impact of not just current market conditions, but also fund performance and actual customer income levels on sustainability scores.

Ideally, this means you and your clients can adjust income levels to reflect the wider economic environment and ensure they maximise the likelihood of sustaining income throughout retirement or until annuity purchase.

  Nominal Income %
15 100.0% 100.0% 100.0% 100% 100% 100% 97% 89% 74%
20 100.0% 100.0% 100.0% 99% 93% 81% 62% 36% 19%
25 100.0% 100.0% 97% 88% 71% 45% 23% 10% 3%
30 100.0% 98% 88% 69% 43% 22% 8% 3% 0%
35 99.0% 91% 76% 51% 27% 11% 3% 1% 0%

All values calculated using a 1% AMC and using GOVERNED RETIREMENT INCOME PORTFOLIO 3

Key: 85%+ Highly sustainable  75 - 84% Quite sustainable  50 - 74% Barely sustainable  0-49% Not sustainable

Find out more

Log in to our drawdown governance service now to see if your clients’ income sustainability scores have changed. 

If you don’t already use the service, visit the drawdown governance service webpage to find out how it can help you track, discuss and manage the ongoing sustainability of your clients’ income.

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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.