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Sustainable income doesn’t need to be a sweat

Catriona McInally, PrudentialOnly a few months into 2018 and we‘re already fast approaching the end of another year….the tax year.  Whether it’s making full use of any unused ISA allowance or making those last minute pension contributions, thoughts may turn to reflection or review.

A review of other finances is also common at this time, including a check on investment performance, fund choice and perhaps more importantly, income!  Do clients have enough income?  Do they need more or less?  Can their investments sustain that current level of income?  These questions are not only important for everyone, but crucial for those in retirement where their investments are their only source of funding their livelihood. These decisions are crucial.

For those relying on investment income in retirement, conversations may turn to the most efficient way to receive this income, whether through Pensions, ISAs, Investment Bonds or Authorised Investment Funds?  Pensions and ISAs are undoubtedly the most tax efficient wrappers in certain circumstances.  If passing on wealth to the next generation in the most IHT friendly manner is important for example, it may mean taking income from an ISA before a pension.  ISAs are tax efficient up until the point of death where they will become part of the clients’ estate for IHT purposes.

If IHT isn’t an imminent problem but sustaining a regular income is, investment choice will be important.  If clients are opting for cash ISAs, the table below demonstrates that finding one which will provide enough of a return to sustain an income, after inflation will prove difficult.  On the other hand, convincing clients to accept some risk by investing into stocks and shares ISAs may also be tricky, especially at a time where markets are volatile.  Time to bring in the professionals – the financial adviser to advise clients in selecting funds which will help with a sustainable income whilst matching their attitude to risk and capacity for loss.

Fixed rate ISAs
Company AER Notice/term Minimum investment
Oak North Bank 1.46% 1 year £1,000
Al Rayan Bank 1.70% 2 year £1,000
Variable rate ISAs
Company AER Notice/term Minimum investment
Marsden Building Society 1.30% 120 day £5,000
Virgin Money 1.21% None £1

Source: – as at 22/02/18, these figures change.

Whether your clients have had a prosperous investment year in 2017 or not, it doesn’t mean to say that attention to sustaining investment income shouldn’t be far from their minds.  There is no crystal ball to predict future returns which means there are a number of risks that clients may want to avoid.  Insufficient returns, sequence of return risk, taking too much income and timing risk being the main ones. All of which are exaggerated by market volatility.

Using the PruFund range of funds within the Prudential ISA can provide the opportunity of  a smoothed investment return while providing the potential a more stable return for investors.  This is especially important for clients looking to reduce risk as they approach retirement or wanting additional security when they start drawing an income later in life as it can allow them to maintain a more sustainable income for their future.

The PruFund range of funds aims to grow your client’s money over the medium to long term (5 to 10 years or more), whilst protecting them from some of the extreme short term ups and downs of direct stock market investments by using an established smoothing process. This means that while they won’t benefit from the full upside of any potential stock market rises they won’t suffer from the full effects of any downfalls either.

So as we all try hard to keep our resolutions for the New Year, providing solutions to clients requiring a sustainable income doesn’t need to be as cumbersome as sweating out the pounds in the gym.  Having a well-managed, highly-diversified investment that has its returns smoothed means,  PruFund can often offer an alternative that is uncorrelated to clients other investments.  This can allow clients to plan better and maintain those pounds in a more satisfactory manner – in their own pockets.

Please contact your account manager for more information on PruFund range of funds and how it works.

The PruFund range of funds all invest in Prudential’s With-Profits Fund, which is one of the largest with-profits funds in the UK. However, there are differences across the range of PruFund funds in their objectives and mix of assets, and how PruFund delivers returns to investors when compared to other With-Profits business, which means the returns received by investors will vary by fund choice.  In certain circumstances, we might need to suspend the smoothing process for one or more of the PruFund funds.

The value of an investment can go down as well as up.  So your clients could get back less than they put in. 

This article is just for UK Advisers – please don’t show it to your clients.

Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling, FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority.



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