Income Drawdown
Recent counsel's opinion indicates that advisers who do not offer alternatives to the annuity run the risk of being sued for negligence by beneficiaries in the event of the client dying prematurely in retirement. On the other hand annuity deferral is a complex area of advice and requires sophisticated investment strategies to minimise risk, to say nothing of the onerous monitoring requirements.
Unlike pension transfers annuity deferral is a daily event. The option to secure part or all of the retirement income on a guaranteed basis requires to be continually kept under review. This involves monitoring market annuity rates and capital values in unison, since even with no upturn in annuity rates opportunities can be missed if one fund in the client's pension portfolio has enjoyed sufficient capital growth to make a partial buyout attractive.
Due to the effects of mortality drag achieving relative value for money against an annuity involves selecting investments which, averaged over the whole term, will outstrip medium term gilts. This necessitates using investment media which offer a "risk premium". But such investments usually fluctuate in value and are particularly unpredictable in the short term. Withdrawals in the early years will often accelerate the problem as the time scale for recovery shortens to age 75, posing the classic risk/reward dilemma. Any attempt to avoid the challenge by adopting an apparently "low risk/reasonable return" investment strategy such as a "with profits" fund is almost doomed from the outset. For IFAs the essential requirement in dealing with clients approaching retirement must firstly be to identify whether annuity deferral is a plausible option, after taking account of each client's own particular financial circumstances. If it is, the adviser must then select the best available solution and thereafter maintain a continuing obligation to monitor its performance. But unlike many other areas of personal financial planning the solution in this case is a service rather than a product.
To provide a viable alternative for advisers we offer a comprehensive "cradle to grave" service on a fee basis with all investment commissions retained by the introducing firm. Our objective is to provide a highly professional service to which advisers introduce their clients without compromising the existing client/adviser relationship. Administration and trustee services are provided by James Hay Pension Trustees Ltd. (a subsidiary of Abbey National plc.) with investment strategies, reporting and monitoring handled by Intelligent Pensions.