Non-advised drawdown customers could be “heading for the rocks”, according to Retirement Advantage, as a new report has suggested there is no magic ‘one size fits all’ investment strategy that works for the duration of retirement.

Retirement Advantage commissioned EValue to stochastically model five strategies to see how different drawdown approaches perform. The results have been published in a new report Drawdown Strategies: The right solution for your clients.

The report considers if a particular strategy, or combination of strategies, consistently produces a better outcome. The five distinct strategies were: unit cancellation; unit cancellation with cash buffer; living off the natural yield or income; longevity tail risk; and annuity. The core analysis was based on a 65 year-old with a pension pot of £200,000 (after tax-free cash has been taken), investing a mix portfolio of 60 per cent equities and 40 per cent bonds, targeting an income of £10,000 a year.

Retirement Advantage pensions technical director Andrew Tully commented: “We’ve seen a significant shift to drawdown as people move away from the security of annuities. We’ve also seen a significant number of people shun advice and go down the DIY route. With this comes the responsibility for people to manage the investment, longevity and capacity for loss risk, any of which can seriously put plans off track.

“Drawdown is a complicated business and our modelling work proves there is no magic solution or silver bullet. No one strategy combines the best of all worlds to create the ideal outcome and it may well be that a combination of approaches through retirement will work best.

“Of course, people’s needs are rarely straightforward, and some may choose the highest income they can alongside access to their capital. Others may choose a fixed and guaranteed income but have access to their funds from time to time and protect their loved ones after their death.”

Share Story: