View more on these topics

Only half of drawdown clients have income likely to last for life

Only half of drawdown customers are taking an income level that is likely to last them their lifetime, Royal London estimates.

Figures from the firm’s drawdown governance service show that 53 per cent of customers have a less than 85 per cent chance their income will provide for them for life.

However, Royal London notes than can be compelling reasons for clients to draw an apparently unsustainable level of income, for example a retiree drawing down more from age 60 before state pension or other benefits kick in at 65.

Royal London has calculated an income sustainability score for clients, showing that while a 6 per cent withdrawal rate may be sustainable over a 15 year horizon, this can soon run the risk of the pot depleting.

Royal London head of investment solutions Lorna Blyth says:“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.”



Paul Lewis: Banks must step up efforts on scam prevention

New rules mean banks will have to take more responsibility for fraud protection. But is it enough? Last month, the police reporting service Action Fraud tweeted: “2019 will not be a happy year for fraudsters.” It was referring to a new initiative where banks will check the name of the payee before transferring money to […]

CI-diagnosis-medical-check up-protection

Sipps must stop being a gateway to bad investments

Sipp providers must clean up their act when it comes to vetting investments for clients, says Clarke Willmott partner Philippa Hann. At the Pension Debate in London today, Hann argued the judgment against Berkeley Burke – which it is currently appealing –  should make Sipp providers stand up and review their due diligence processes. Hann predicted the […]

India H2 outlook: biometric IDs, GST and a financial sector revolution

Thomas Smith, Fund Manager & Co-Head of Emerging Market Equities, argues that a new India is taking shape with the introduction of biometric IDs, increasing smartphone penetration and a growing demand for credit. Read more here Investment risks Past performance is not a guide to future performance. The value of an investment and any income […]


News and expert analysis straight to your inbox

Sign up


There are 4 comments at the moment, we would love to hear your opinion too.

  1. It’s a bit difficult to comment on an article that (unless my browser’s malfunctioning) doesn’t seem to be there. That said, the heading may well be correct, based on the probability that many people choose DrawDown in favour of an annuity in the mistaken belief that it’s some sort of magic recipe for extracting a quart from a pint pot. There are certain immutable laws of economic gravity that can be defied only for so long and sometimes not for very long at all. If that all important critical growth rate isn’t achieved, the whole thing starts to go wrong and the fund starts running down, particularly if fixed withdrawals at anything but a very modest level (e.g. 4% p.a. or less of the value of the fund), are being taken.

    A common yet erroneous assumption seems to be that the critical growth will be achieved, allied to a lack of understanding of the quite possibly irrecoverable damage that’s likely to occur if it isn’t, particularly early on.

    An annuity is an insurance policy against living too long and, for those who do, particularly those who qualify for an enhanced one, can represent good value for money. Ignoring GAR’s that may well be significantly higher than any available in the open market on normal terms is crazy. And yet, because of blind prejudice against annuities, some people still do it.

    The other side of the coin is that, for those who don’t live a long time, an annuity probably isn’t good value, rather like any other type of insurance against which the policyholder never needs to make a claim. In one sense, the premiums paid have been a waste of money, yet that doesn’t deter most people from taking out insurance on all sorts of other things.

    It would be interesting to know how many people who abjured annuity purchase and instead went for DrawDown, only to realise, eventually, that an annuity very probably would have been a better choice, notwithstanding the relatively poor residue payable after they’ve died.

  2. I wrote a paper on this months ago identifying the different types of drawdown client and sent it out via Facebook page and the trade press. All who responded agreed that it correctly identified every type of drawdown client they had ever dealt with. Oned of these is the ‘Live it up’ drawdown client who will typically come to us with a small-to-medium sized pension pot saying “I’m 65 and I want 10 or 15 good years out of it. I’m not in great health and I doubt I’ll be doing foreign holidays that much longer. I want to enjoy my money while I’m still fit enough. After that I’ll live on my old-age pension.” Annuity companies, we know from the high-level discussions in which we’ve been involved (a meeting at the ABI which included representatives from the Treasury) don’t like to admit either that such people exist, or that anyone can live on the state retirement pension alone, because it’s bad for annuity sales. The reality however is that such people do exist; we operate in a poor town where many elderly people are living on the state retirement pension alone. We’ve had family members who’ve grown old on the OAP. Another typical sentiment is “I don’t want forty quid a week from an annuity just going to pay nursing home fees when I’m 90. I want to have a good standard of living early in my retirement, not a little bit of money every month forever, that’s worth less and less with inflation.” These are phrases actual clients have used to us. Many clients. Repeatedly. This is real life. We deal with it. If they stay healthier longer than expected however, then equity release might also be an option for them. ‘Annuity substitute drawdown’ clients as we callm them, the ones that do want their drawdown pot to last a lifetime, are very much in a minority.

  3. Yes its all live for today and that also explains the huge borrowing and debt burdened society. Maybe get on top of the debts and have a few expensive holidays then hope for the best.

  4. Perhaps the figures are distorted by people like the HRT client I spoke to yesterday.

    He told me he was going to draw his DB pension early with an severe actuarial reduction because he is desperate to retire (not enjoying his employer’s attitude to him).

    Instead we considered him taking an 8%pa withdrawal from his separate DC benefits for 6 years then stopping this, taking his full DB benefits at NRD plus State pensions for him and his wife at this point, he does have a BTL and a small pension providing £11kpa now. At this point he would cease to need withdrawals from the DC scheme day by day). He knows 8% is unsustainable and so do we, but this will allow him to retire now with enough to live on until this all cuts in.

    This is a problem when all you have is statistics without any context.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm