Income sustainability scores now updated – Q4 2020

11 February 2021
Every quarter, our drawdown governance service (DGS) calculates a new income sustainability score for your clients, based on what's happening in the market.

The income sustainability scores for Q4 2020 have now gone live. Here’s an update on what’s changed.

Q4 in review

As 2020 concluded, global markets generally showed signs of recovery from the turmoil exhibited earlier in the year. The US and UK both demonstrated similar growth over the quarter, albeit facing different challenges.

The US began the quarter with news of a declared election for Joe Biden and the Democratic Party. Investors reacted to the potential for a split US government with Georgia deciding which party takes the Senate, ultimately influencing whose business tax law is implemented. A chance for lower corporation tax boosted the US stock market early in the quarter.

The election results also meant high hopes for a large fiscal stimulus package for the US. Positive reactions were seen from this news, where the market ended the year displaying recovery and continued to ride on the confidence shown in the US tech sector.

In the UK, the biggest challenge faced seemed to be a Brexit trade deal, creating some uncertainty over the quarter. 2020 ended with positive news of a completed trade deal which was acknowledged by UK equity investors. However, since the deal was a trade and cooperation agreement and not a full free trade agreement, the Bank of England believes this could hamper the UK economy in 2021, retaining uncertainty in the short term.

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 our Governed Range.

Amidst the political noise, regulatory approval for vaccines in November provided confidence across global markets, boosting equity markets. The rollout of vaccines also began in December across the UK, which provided some growth and increased investor assurance.

Although there were signs of recovery towards the end of 2020, uncertainty still remains. The virus threat still exists, and evidence of new variants is likely to create some instability in returning back to normality.

The significant market volatility we’ve seen through 2020 has highlighted the importance of tools like our drawdown governance service in supporting 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 risk profiling and income modelling tools mean we’re well placed to support you and your clients in this area.

Model update

The forward-looking assumptions over Q4 show lower levels of volatility across most asset classes in the immediate term, but remain unchanged in the longer term. 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 also fallen slightly over the quarter, remaining at historically low levels with little chance of increase in the near future.

How the income sustainability scores are calculated

Here’s a reminder of how the income sustainability scores on our drawdown governance service are calculated:

1.            Nominated sustainability score – what’s your client’s score relative to their nominated ‘target’?

2.            Investment performance – have your client’s investments outperformed inflation?

3.            Annuity rates – how have market annuity rates changed?

4.            Income plan – has your client taken more or less income than initially discussed with you?

These factors work together every quarter, alongside the Moody’s assumptions, to give you an idea of whether your client’s income sustainability is still on track or needs some attention.

Setting a reasonable income relative to your client’s investments is one of the key aspects of investing through drawdown. Our financial planning tool can also help you model different income scenarios and help drive discussions with your clients when planning an income through retirement.

The underlying assumptions for the financial planning tool have also been updated this quarter.


What does this mean for the DGS and 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) similarly, in comparison to the last quarter.

Lower expected future returns over the quarter will result in lower fund values. A further slight reduction in gilt yields also impacts clients who are targeting an Income for Life, as annuities become less affordable. Overall, clients with longer income terms or higher income amounts may see lower sustainability scores.

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 retirement savings values 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.

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 client income levels on sustainability scores.

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

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.