He highlights some of the ongoing considerations an adviser should bear in mind:
• Income needs.
• Wealth.
• Other income sources.
• Health.
• Duration of drawdown.
• Attitude to risk.
“Only by following a review of a client’s circumstances and needs can the appropriate structure be recommended," he adds.
Royal London’s Lorna Blyth, pension investment strategy manager, builds on this list. She also advocates understanding and reviewing the strategy in the light of:
• Life expectancy.
• Personal tax circumstances.
• Potential impact of investment returns.
• Ongoing plan changes.
• Chosen investment approach, such as assets used and capacity for loss.
Ms Blyth stresses: “The relative importance placed against each factor will often vary as no two clients are the same.”
For example, if the plan charges are low, it is unlikely these will have much effect on the client’s income sustainability.
However, she warns: “Our analysis shows if these charges were to rise above 1 per cent, a 5 per cent withdrawal rate at age 65 could quickly become unsustainable.”
Therefore, Ms Blyth advocates understanding how investment solutions can “mitigate sequencing risk, and how the investment strategy will perform in the worst-case scenario, in order to see the effect a really bad year could have on the client’s long-term income”.
Safety first
According to a spokesman for LV=, “safety first” should be advocated when it comes to creating a suitable retirement plan for clients.
The spokesman says: “This should protect essential income first and enable consumers to enjoy some flexibility without gambling on security.”
Whether they choose a blended solution or not for their clients, taking the “safety first” approach to retirement means advisers can help consumers “shape specific solutions to ensure they appropriately manage the risk of running out of money”, the LV= spokesman adds.
simoney.kyriakou@ft.com
