Having the freedom to access pension funds has led to a shift in purchasing behaviour, with many people remaining in drawdown when they would have previously chosen an guaranteed income for life (GIfL) provided by annuity.
This latest paper from Just explores the case for continued use of a GIfL in your clients’ retirement portfolios.
In brief, the key points are:
- Longevity – can your clients afford to take on this risk?
- Consider the benefits of a personalised rate based on circumstances such as height, weight, marital status and postcode. An individual doesn’t need to be ill to get an increased rate.
- The GIfL rates for a healthy 65 year old (averaged from December 2017 to May 2018) show that they can achieve a lifetime income rate of over 5%.
- By securing an underpin of guaranteed income, the adviser is able to rebalance the remaining equities, incorporating the GIfL as part of the portfolio.
To test this, we can look at replacing the bonds element of an example portfolio with a GIfL. (Please see full article for examples)
- Using GIfL even at higher withdrawal rates, increases the probability of maintaining income, as the volatility found in bond funds has been removed.
- When it comes to providing a sustainable withdrawal rate, treating GIfL as a guaranteed asset class shows that blending works.
- Finally, it is inevitable that there will be a market correction at some point, and blending in this way will help to mitigate some of the downside.