Asset manager Brooks Macdonald has launched a decumulation service consisting of two drawdown pots, aiming to respond to consumers’ short-term needs, while reducing long-term risks.
Available through financial advisers, the product targets clients with a minimum of £500,000 to invest, who are either withdrawing income from their portfolio or will do so within the next seven years.
The short-term portfolio will provide income for the first seven years of retirement. It is invested in a mixture of cash - typically providing income for the first two years - and structured return assets issued by banks such as HSBC and UBS - maturing every six months and thus catering for the subsequent five years’ income.
The second drawdown pot, targeting growth, aims to beat inflation risk over the longer term by investing in diversified assets. This will be through a multi-asset approach, with between 40 and 95 per cent invested in equities, Brooks Macdonald stated.
Once the seven-year pot has been exhausted, the long-term pot becomes the client’s source of income.
The asset manager decided to launch the new product due to the challenges posed by pension freedoms – since 2015, more than 1.8m people have accessed their defined contribution pension pot, according to latest data from the Financial Conduct Authority.
Caroline Connellan, Brooks Macdonald's chief executive, said: "With longevity and inflation risks, people are often uncertain how to manage their money and make it last through their retirement.
"That is why we have launched the Brooks Macdonald decumulation service. This takes an innovative approach to retirement drawdown, aiming to mitigate these risks and to give a greater degree of certainty over income throughout retirement."
John Wallace, managing director and co-head of UK investment management at the company, said the decumulation service can benefit clients in or approaching drawdown who "may put their retirement income at risk from products or solutions not wholly appropriate for their specific retirement journey".
He told FTAdviser the product was soft launched to a group of financial advisers a few months ago.
He said: "Financial advisers like the fact that it gives them an opportunity to re-engage with the client on a regular basis.
"It works well with their cashflow modelling, which has become much more of a tool that financial planners use, and also allows them to separate the two pots, which gives them certainty and stability."
David Main, director at Berkshire-based IFA Petrus Financial Services, said: "Clients having been invested for years know the importance of embracing risk to achieve returns.
"Yet, at retirement, they’re advised to reduce that risk (life-styling). They may also have tried the low risk approach, but failed to provide the low volatility returns they need.
"So, clients used to risk and the long-term returns, can now include decumulation in their portfolios, without the concern it will impact on monthly budgets, until the investment has gained momentum."