“There is no such thing as a safe rate of income withdrawal,” says Andy Leggett, head of business development at Barnett Waddingham Sipp. There is only a rate that is consistent with the client’s objectives, overall circumstances, investment portfolio and the risks they are willing to take.
“If the client’s main concerns are longevity and loss of purchasing power in later years, they may see 100 per cent as unsustainable. By contrast, a client with significant non-pension assets and an overriding concern that they can’t take their money with them when they are gone may see 120 per cent Gad as insufficient and look to flexible drawdown.”
Running on from this, advisers can add value in tax-planning issues around income drawdown. Blended solutions for retirement income are becoming ever more popular, with drawdown, Isas, property and annuities being used to create an overarching solution. Advisers can look at management of income tax and what is most appropriate to draw and when.
Longer lives
This links to the management of funds. If the adviser has already been assisting in the build-up of pension assets, transitioning to an allocation more appropriate for drawdown is a natural step. If picking up a client at the point of retirement, it may be necessary to take a more in-depth look at the existing allocation to determine whether it has been sufficiently de-risked.
The uplift in maximum Gad has already provided an opportunity to work with clients, according to Peter Bradshaw, national accounts director at pension technology firm Selectapension. He says the number of cases analysed by advisers on its income drawdown calculator rose by 40 per cent in March and April compared with January and February this year.
Although drawdown limits take no account of health, as enhanced annuities do, an adviser can still compare the date of retirement with projected life expectancy and demands of retirement. Some individuals are already looking at up to 30 years in retirement; shifting everything into cash at the age of 55 is highly unlikely to produce a sustainable income for such a long time. Balancing the risk with the need for investment growth to avoid depleting the pot is a key area for adding value.
There is also a conversation to be had with clients on what will happen to their drawdown assets when they die. In April 2011, the requirement to annuitise before the age of 75 was removed. Along with this came an agreement that any assets remaining in an individual’s pension could be inherited upon death, subject to a 55 per cent tax charge, designed to recover the tax relief given on the way in.
