Chance to administer 'distressed drawdown' alternative
This press release was issued in November 2009 and represented Living Time's view at that time. This article is recreated here to provide a review of past commentary and may not represent current ideas.
Shares bounce-back offers advisers chance to administer 'distressed drawdown' alternative, says Living Time.
Clients who have elected to start income drawdown while still having their retirement savings exposed to stock returns may be feeling distressed at the market volatility during the past few years. If so, it is possible that the recent stock market recovery has opened up the opportunity for financial advisers to offer a ‘sleep well at night’ alternative to these clients, says Living Time.
The retirement income specialist said it was actively working with IFAs whose drawdown clients have seen the value of their pension funds plunge, endangering the sustainability of their future income stream.
“It has been a sharp reminder that traditional drawdown carries its own risks,” said Dave Harris, Living Time’s managing director of sales & marketing. “We are coming across more and more ‘distressed drawdown’ cases who feel the rise in equity markets has given them some room for manoeuvre, but who are adamant they don’t want to put themselves through the rollercoaster again.”
He said that many retirees are realising that the early years of drawdown are crucial to its overall success. “Investing for income is a very different scenario to investing for growth,” he said. “You do really need to get off to a good start, but if the markets are flat or fall while taking an income, particularly in the early years, it is frightening how quickly the fund can be depleted.”
“This is not as extreme as it may sound,” said Dave Harris. “The FTSE 100 is still around 1,000 points lower than it was a decade ago, despite the recent bounce back. It doesn’t require much imagination to understand why those income drawdown customers were feeling quite distressed back at the low point in March.”
He said that although income investors may have the same risk tolerance as growth investors, they need to focus on their risk capacity. “Capacity is how much risk I can afford to take as opposed to how much risk I want to take. Retirees usually don’t have much margin for error – they can’t easily replace the income, can’t reinvest while assets are cheaper and don’t have time to wait for the situation to right itself.”
Dave Harris said that switching into fixed-term annuities gives drawdown investors a chance to capture the recent gains that have occurred so far, for all or a portion of a drawdown portfolio. “After the excitement of the roller-coaster ride, Living Time Plans are a ‘sleep well at night’ alternative that removes the volatility while enabling clients to keep control of the funds,” he said.
Living Time offers a range of solutions to clients, each of which allows them to rethink their retirement income strategy before age 75 to take account of changing circumstances such as the onset of ill health or death of a spouse.
“Until recently, if clients wanted a more flexible option than a lifetime annuity they had little choice but to move into traditional income drawdown, even if they were not convinced about the potential for investment gains,” said Dave Harris. “This is no longer the case – a fixed-term annuity allows people to take a secure income while keeping their options open and insulating them from investment performance risk.”
Ends
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Posted by: Stuart Wilson
Post date: Monday November 9, 2009 @ 16:18
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Alico is the insurance company that provides Living Time Plans.
Living Time Limited is an appointed representative of American Life Insurance Company (Alico). Living Time Limited is registered in England with company number 04750947 and has its registered office at 1 Conduit Street, London W1S 2XA. American Life Insurance Company is a private limited company incorporated with limited liability in Delaware, USA number 0123730. Head Office: One Alico Plaza, Wilmington, Delaware, USA 19801. Branch Office: 22 Addiscombe Road, Croydon CR9 5AZ. Registered in England number BR000230. Authorised and regulated by the Financial Services Authority (FSA reference number 139417).