DrawdownJun 1 2018

Drawdown customers warned of lower returns

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Strong returns enjoyed by those drawing down an income from their investments in retirement are unlikely continue, Royal London’s Lorna Blyth has warned pension customers.

Speaking to FTAdviser, the pensions investment strategy manager at Royal London, said: “We’ve had an extended rally in markets for a number of years now.

“If we look back to 2015, multi-asset was doing something like 8-10 per cent [return], 2016 it did something like 14-15 [per cent].” 

She added: “If you’ve been taking a reasonable level of income, you will have a buffer there but certainly, going forward, it’s unlikely those stronger returns will continue."

Ms Blyth said advisers can help clients in understanding how their chosen investment solution will perform over different scenarios and “have a conversation with the client in terms of setting expectations”. 

If you’re only paying minimum contributions, then that’s something you could look at to see if you could pay in a little bit more.Lorna Blyth

“And if the investment solution is being well managed to a specific risk target that the adviser can understand that as well,” she noted.

Advisers should also review their clients’ plans on the basis “you can make all these assumptions about how investments will perform but at the end of the day, returns are uncertain, so it is about making sure things are tracking along as expected”.

Earlier this year, Royal London published its analysis of the gender gap in retirement incomes, which showed it had increased significantly.

In 2006-07, the average retired single woman had a gross income of £294 per week and her male counterpart had £325 – a gap of £31 per week.

But by 2016-17, that gap had nearly trebled to £85, with the average woman on £316 per week, while the average man is on £401 per week.

Ms Blyth admitted the problem was getting worse rather than better.

“A large part of that is to do with how much women have been paying into pensions and what does their pension look like,” she said.

Asked what the solution is, Ms Blyth explained: “In terms of what to do about that, part of that is looking at the contributions you’re paying into your workplace pension now. If you’re only paying minimum contributions, then that’s something you could look at to see if you could pay in a little bit more.”

She also flagged the importance of making sure female clients are claiming everything they are entitled to.

“For example, I took some time off work when I had both of my children and I took a part-time job in the meantime. 

“What I didn’t appreciate was my national insurance contributions had stopped,” she said. 

“It wasn’t until afterwards when I went to check, [and found] I had a gap. So to make sure you’re topping that up and make sure that you’ve got no gaps in your track record of paying national insurance contributions.”

She also urged women to seek financial advice “to help support you in later life”.

Watch the full interview with Ms Blyth at the top of the page.

eleanor.duncan@ft.com