Retirement IQ

Five funds that will pay your pension - Telegraph

March 22, 2017 09:17

Annuity rates are rising - which is good news for retirees who are prepared to swap a lump sum for an income paid for life.

But the rates are still poor in comparison to other returns. Importantly, annuity returns are still, in many cases, less than the income you could hope to receive from a diversified investment fund. With the latter, with luck, you will end up retaining or even growing your original capital.

This is the headline from a very good article by Richard Dyson in the Telegraph.

The article uses some of my annuity data and goes on to look at some funds that may be considered in the cuttent low interest rate era

It is a really good read so click here to visit the Telegraph website

Rules or discretion?

March 6, 2017 11:14

In my last Retirement Strategy I talked about the big issues facing the retirement market in 2017 and concluded that with some much uncertainty in the world, deciding how best to convert a pension pot into income is probably one of the most complex areas of financial planning. This decision is made even more complicated because there are so many behavioural and technical issues to consider.

This begs the question how; “how do advisers work out what advice they will give their clients”?

I attend an excellent conference on Exchange Traded Funds (ETFs) a few weeks ago, and although I did not fully understand the rocket science behind alpha and beta I was struck by something said by one of the speakers.

He said that the debate about investments does not have to be framed between active and passive investments because it might be better to talk about the different between investment decisions made with discretion and rules based decisions.

Reflecting on this and applying it to advice on retirement income I see a parallel. I wonder how many advisers use their discretion when making an advice recommendation and how many have a ruled based process? I am not talking robo-advice, I am thinking about the simple rules used by advisers when determining the best course of action.

I guess a good example of discretion is where an adviser takes the view that clients with larger funds are better served with drawdown than annuities and they will arrange the plan on their preferred platform using a model portfolio. This may well be the best solution but where is the evidence that other product solutions and investment strategies have been considered?

Read the original article from Money Marketing

I find myself now asking why I have chosen solution A over solution B and the truth is I have a good deal of discretion. One of the many strengths of financial advisers is that they research the market and use their skills to identify the best solutions so discretion can be a very positive thing.

A rules based approach is where an adviser analysis the client’s retirement objectives and uses a number of simple rules when determining the most suitable solution. One of the easiest to understand rules (but necessarily the right one) is that amount of guaranteed income need over and above the state pension and any DB benefits should be secured by a lifetime annuity. Another popular rule is the so-called 4% rule which is used when calculating the level of sustainable income from drawdown.

There has been a lot written recently about the 4% rule and I will look at the various research papers on this in a future article.

I have my own three golden rules:

  • Client’s should only consider taking risk with their retirement income if they have other sources of income or capital to fall back if needed
  • Client’s must understand all the relevant risks: not just superficially but the impact on their income if there is a market crash
  • All the relevant alternative options should be considered

The conclusion is that just as clients should not be given a black and white choice between annuities and drawdown, good advice involves using the adviser’s own discretion which is underpinned by a rules based process.

I hear you all asking; ”what are the rules”? - I will return to this soon

Mapping your retirement journey

February 21, 2017 12:57

In my last article here, I showed you how planning for retirement involves two very different elements: your own behaviour, and the technical aspects of pensions themselves. Now it’s time to take a closer look at that ongoing tension between the behavioural factors and the technical factors. Or, to put it another way: what you want, versus what is possible.

Retirement isn’t what it used to be. And that’s a good thing. For many, retirement is not so much a single large event but a series of much smaller events. There’s even a new buzz-phrase for it: ‘the retirement journey’.

The three legs of the retirement journey

To keep it simple, we can divide the retirement journey into three distinct phases. It’s then easier to identify the behavioural and technical factors that affect each stage in turn.

Read the rest of this article on the unbiased website

Looking ahead in 2017

January 31, 2017 14:57

Looking ahead in 2017

This year I will be looking at the changing nature of the retirement income market. There are some big topics to get our minds around including;

  • the role of robo-advice
  • sustainable income levels from drawdown
  • the future for annuities
  • how to invest taking into account post Brexit economic conditions and Trumponomics

Each month I will look at how topical issues are impacting on retirement income planning but to start the year off I will take a quick look at the major issues that could influence the way advice is given and decisions made.


I didn’t think Trumponomics was a real word until I looked it up and saw it described by Investopedia as the economic policies of Donald Trump who won the presidential election on the back of bold economic plans such as cutting personal and corporate taxes, restructuring U.S. trade deals and introducing large fiscal stimulus measures focused on infrastructure and defence. Trumponomics is dogged by a lack of consistency, coupled with a style of delivery that often leaves room for multiple interpretations, has made putting predicting what will happen to the US economy challenging.

In fact, in the short time between writing this and being published the incoming administration may have already made some policy announcements where the effects will start reverberating around the world.

I need say no more other than all eyes will be on the US to see what happens next.

Post Brexit economic conditions

With increased certainty about the UK’s negotiating position comes increased concern about how events may be unfold. It shouldn’t matter if you are a ‘glass half full or half empty’ person because although the future is uncertain there are several things to watch out for. The first is the impact of a weak pound which may translate into higher inflation and interest rate (see my comments on annuities below).

The second is the potential for ‘trouble ahead’ in the UK economy which may result in increased volatility in equity markets. If this proves to be case it will have been better have to have taken defensive action in advance rather than be caught on the hop. I may be wrong, but even if markets continue going up, it reminds us that sequence of returns risk is not an abstract concept but a real-world phenomenon.

Finally, there has been talk of relaxation for Solvency II which could help with pricing of annuities if less capital has to be put aside.

As with President Trump, look out for the unexpected.

The future for annuities

There should be no need for me to hark on about rising bond yields and rising annuity rates as this should be self-evident. Instead watch the relationship between annuity yields and the expected returns for lower risk drawdown portfolios.

If, and at this stage it is a big if, the yield on the benchmark 15 year gilt increases from the present level of 1.8% to 2.5% or more, and equity returns come off the boil, perhaps annuities will once again start giving drawdown a run for its money.

My instincts tell me that this dynamic may be the one to watch in 2017.

Follow annuity and gilt trends each week - this is a new chart


In conclusion, now that the dust has settled on pension freedoms and less people are taking their pensions as a cash sum, and with some much uncertainty in the world, deciding how best to convert a pension pot into income is probably one of the most complex areas of financial planning for middle Britain.

Telegraph-slice your pension

November 10, 2016 23:51

Retirement does not have to be a stark choice between buying an annuity or retaining your investments and taking an income from them.

More people than ever are blending the two options to provide a basic level of guaranteed income while actively managing the rest of their portfolios. Some also like having the flexibility to delay annuity purchase in the hope that the rates improve.

The key to deciding how to use your retirement savings to best effect is sitting down and ranking how much you value things such as flexibility of income, steady monthly payments, or knowing that you can pass on your savings to the next generation in the best possible way

Billy Burrows, director at the consultancy firm Retirement Intelligence, suggested people think about retirement in three stages.

“In your early sixties you are active and may have part-time or consultancy work; there’s a middle period when you take it easy, and in later life you might need to pay for care,” he said.

Mr Burrows suggested buying a series of annuities, using money in drawdown accounts, as the need for flexible income wanes in later life. Purchasing annuities gradually minimises the risk of buying when rates are low. Buying annuities later will boost rates, as insurers expect to pay for fewer years

Read story in full