Mr Burrows agrees the blending does not have to be “on day one”. He adds: “It might be better to blend as you go along, and purchase some annuities as the client gets older.”
But the possibilities do not end there. Ms Tait continues: “It is also possible to follow these patterns within a hybrid product which combines elements of both growth and security.
“This has the advantage of delivering a single income payment.”
According to Andrew Tully, pensions technical director for Retirement Advantage: “This kind of solution can help cautious clients manage the balance between market exposure and protection as they move through later life.”
Income requirements
The client’s need for income is also something that will need to be managed well throughout retirement, not just at the outset.
For this, the flexibility of blended solutions can be a good fit. Take the following examples from Femi Folorunso, senior consultant at Mattioli Woods.
He says the firm has some clients whose income needs are “delicate enough” to require income guarantees up to a certain level.
However, any amount above these guarantees is necessary, but not vital. He says: “Such clients may opt for a blended income strategy using a final salary plan (if they have one historically), in combination with an income drawdown plan."
In other cases, the firm has clients where the guarantees are required for a short period of time, for example where the individual is waiting for the state pension to kick in.
For these clients, he advocates: “a combination of fixed-term annuities and income drawdown plan”.
There could also be a need for some clients to buy a fixed-term annuity while waiting for state benefits to kick in, as the case study from Canada Life shows.
Meeting clients’ income needs at and during retirement therefore is not a set-and-forget, one-off piece of advice work. It’s a very personal, tailored solution that needs to be revised regularly.
Investment choices
For Lorna Blyth, pension investment strategy manager for Royal London, the best possible blended solution is one where the investment strategy works, not just at the outset but throughout.
She explains: “It needs to deliver growth with reduced volatility in order to cope with the effects of sequencing and inflation risk.
“However, it’s not just about the investment choices; ideally it should include a regular review process so there is an understanding of how the asset mix will perform in different scenarios.
“In my view, it must be risk-managed and should be part of a process that helps the customer understand what a sustainable income level looks like, how long they might live for and all reviewed continuously.”
