15 November 2018

Half of income drawdown customers have an income likely to last them for life

4 min read

 
Helen Morrissey, Personal Finance Specialist

Helen Morrissey

Personal Finance Specialist

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Just under half of income drawdown customers are taking an income with a high likelihood of lasting them for the rest of their life according to Royal London’s Drawdown Governance Service.

According to the figures 47% of customers have a more than 85% chance of their income lasting them for life.

The Drawdown Governance Service is provided by Royal London to help advisers engage with their drawdown clients. It will calculate an income sustainability score for their clients, track their clients’ progress against this score every quarter and highlight if there are any changes.

This enables the adviser to recognise clients who are potentially at risk of not meeting their financial objectives. While 53% have a higher risk of running out of income it is important to note that in some cases customers will have purposely chosen to draw their pot down more aggressively. For instance, someone may be 60 years old and choosing to draw down one pot to give them income before others become available at age 65. As of November 2018 the service is used by 5025 advisers across 3078 firms.

Royal London has developed a heat map to assess the sustainability of different withdrawal rates over different terms (see below). The figures show that over a 15 year term a 6% withdrawal rate is highly sustainable. However, as the term increases this become unsustainable.

Customers are invested in a variety of different strategies with 30% of those with a high level of income sustainability being invested in Royal London’s Governed Retirement Income Portfolios (GRIPs).The GRIPs are a suite of five portfolios designed specifically for clients in income drawdown. Portfolios are chosen depending on clients’ attitude to risk.

Lorna Blyth, Head of Investment Solutions at Royal London Intermediary Pensions, said: “For some income drawdown customers income sustainability is not so important as they have high capacity for loss. For others it is extremely important that they understand the risk around potentially running out of money. Advisers can use the Drawdown Governance Service to make sure their clients are on track with their retirement goals and gives them prompts to speak to them if their circumstances change.”

Royal London Sustainability Scores Heat Map

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Sustainability scores heat map

All values calculated using a 1% AMC and using Governed Retirement Income Portfolio 3.

For further information please contact:

Helen Morrissey, Personal Finance Specialist

About Royal London

Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June.

At Royal London, we’re proud to champion the value of impartial advice. We believe it plays a crucial role in connecting people with the products that are right for them – and is key to delivering better outcomes and experiences for our customers. At the same time, it helps to build trust in our products and services.

Royal London works alongside advisers not in competition with them. That’s why we’ve made some key commitments to the intermediary market. You’ll find more detail on our commitment to advisers at http://adviser.royallondon.com/campaigns/our-commitments/