The retirement space is a complex topic. When pension freedoms were announced in 2014 the investment landscape was blown wide open.
A dedicated drawdown solution, specifically designed to cope with regular withdrawals, is of paramount importance in the post-pension freedom environment we find ourselves in. One key difference between the accumulation and decumulation phase of client investment journeys is the stress levied on portfolios from regular withdrawals.
In accumulation, a fall in portfolio value while painful is only a paper loss, and over a market cycle has a less of an impact on the final outcome.
In decumulation, some of that paper loss is realised through the regular withdrawals and this is where the difference materialises.
Consequently, a solution has to be built with emphasis on downside protection. Balance is the key. An element of capital growth is equally important if the pot is to last the client’s lifetime. The solution that fits this brief well is one run by Parmenion – PIM Strategic Guardian, specifically designed for the challenges of drawdown.
With a two-year track record, the portfolios have demonstrated they perform well, importantly protecting client capital relative to accumulation models through the market dips so far.
The asset allocation of Guardian is not simply built based on the historic return, volatility and correlation characteristics of asset classes.
In addition to this core ingredient, in-depth analysis of asset class drawdowns through periods of stress, alongside asset class correlations specifically from those same periods, have been factored in.
This culminates in a strategic asset allocation which prioritises assets offering greater protection to a portfolio during a market correction.
There is an increased weight to defensive assets such as cash and government bonds, alongside the use of absolute return products offering protection in an alternative way to traditional fixed income.
That being said, there is also a healthy allocation to high growth assets such as small and mid-cap equities, fulfilling the requirement for long-term capital growth.
Risk cannot be reduced entirely within retirement because the portfolio must have the ability to sustain the withdrawal rate necessary to meet the client’s needs. The Guardian portfolios retain that volatility profile defined by the risk grade, while offering a compressed downside risk.
Finally, the Guardian portfolios have been independently assessed by consulting actuaries Hymans Robertson, as suitable for decumulation strategies.
This provides a further layer of comfort that PIM Strategic Guardian provides advisers with a strong proposition to meet client needs.
Steven Lloyd is an investment director at Ascot Lloyd