Keeping income withdrawal rates within sustainable levels is vital to the long term success of an income drawdown portfolio according to Royal London.
Analysis of the performance of the mutual insurer’s Governed Retirement Income Portfolios (GRIPs) shows that if someone had invested £50,000 in one of the portfolios when they were launched seven years ago and took out an income of between 4%-6% per year, in the vast majority of cases retirees would still have more in their portfolio than they had initially invested.
For instance, someone investing £50,000 in GRIP 3 and taking an income of 4% per year over seven years would currently have £63,417 in their portfolio. Someone invested in GRIP 5 and taking a 4% annual income would currently have more than £73,000 in their portfolio. This compares with a benchmark return of £56,288.
The GRIPs were launched in August 2012 as one of the first investment solutions designed exclusively for customers looking to take a sustainable income from their pension. There are five different portfolios to choose from depending on the clients’ attitude to risk. GRIP 1 is the lowest risk investment mix while GRIP 5 is the highest.
The portfolios are based on a diversified mix of assets designed to capture market upside and respond better to market downturns than a pure growth portfolio. Demand for the portfolios has grown strongly with assets under management currently standing at approx. £3.7bn.
Lorna Blyth, head of investment solutions at Royal London, said:
“An income drawdown portfolio can enjoy strong investment growth but if the levels of withdrawals are too high then customers risk running short of money. These figures show that by working with an adviser to keep withdrawal rates at a sustainable level customers can benefit from a resilient income drawdown pot that can weather the storms caused by issues such as trade wars and Brexit.”
Notes to Editors
The GRIPs invest in a mix of equities, high yield bonds, corporate bonds, index linked gilts, commodities and property funds managed by Royal London Asset Management (RLAM). They also benefit from tactical asset allocation tilts by RLAM’s head of multi-asset, Trevor Greetham. The portfolios benefit from a robust governance process with an Investment Advisory Committee meeting every quarter to review investment options and asset allocation so customers are reassured that each portfolio is on target to achieve its particular level of risk and income.
About Royal London:
Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £138.9 billion, 8.6 million policies in force and 4,126 employees. Figures quoted are as at 31 December 2019.