Maximising the Benefits and
Minimising the Risk of Drawdown
Retirement income planning in 2015
A NEW ERA
Tax Free Cash
Retirees
3 Key Choices
Additional
cash needs?
Sustainable
Income
Needs:
Personal MIR
Accelerated
Income
needs?
Learning Outcomes
 Describe the purpose of Drawdown reviews, HMRC and FCA
requirements
 Calculate relevant and personalised critical yields
 Evaluate when conversion to an annuity might be considered
 Understand what an appropriate process for Drawdown
reviews might look like
Handset Question 1
What does your Drawdown Review process currently
look like for clients under 75?
1. Annual review by post, email or telephone.
2. Three yearly review by post, email or telephone.
3. Annual review face to face.
4. Three yearly review face to face.
The purpose of Drawdown Reviews
Retirees
Adviser
• HMRC Requirement
• GAD Review to ensure fund
doesn’t deplete too quickly
• Ongoing review post 2015?
FCA Rules for Drawdown Reviews
Outcomes =
COBS 9.3.3
personal
recommendations
Regulatory updates
55 and 67
Best Practice for Drawdown Reviews – COBS 9.3.3
“When a firm is making a personal recommendation to a retail client
about income withdrawals or purchase of short-term annuities, it
should consider all the relevant circumstances including:
(1)the client's investment objectives, need for tax-free cash and state of
health;
(2) current and future income requirements, existing pension assets and
the relative importance of the plan, given the client's financial
circumstances;
(3) the client's attitude to risk, ensuring that any discrepancy is clearly
explained between his attitude to an income withdrawal or purchase of a
short-term annuity and other investments.
COBS 9.3.3
An appropriate process – meeting the needs of COBS 9.3.3
Frequent reviews
Charge an
explicit facilitated
fee
Conduct full fact
find
Check
Drawdown ATR
Relevant Critical
Yields
Change in
circumstances
State of health –
self and
dependants
Capacity for loss
Issue relevant
annuity quotes
Discuss options
with client
Make
recommendation
Is anything missing from your Drawdown Review Process?
“A process which doesn’t include both health
questions and the practical use of the answers to
those questions is likely to result in more clients
remaining in drawdown, possibly to their detriment”
Outcomes of the typical Drawdown Review
Are sufficient
reviews being
undertaken
and is health
being
considered?
Two key questions
What are the outcomes
of the typical Drawdown
review?
Based on the requirements of
COBS 9.3.3. is anything missing
from your Drawdown review
process?
Capped Drawdown Review: Outcomes
•
•
•
•
•
Leave everything untouched
Stay in drawdown with adjusted income levels
Move whole fund to annuity/enhanced/impaired annuity
Move part of fund to annuity/enhanced/impaired annuity
Move to Flexible Drawdown
Outcomes of the typical Drawdown Review
Enhanced
annuity rate?
Income
requirements
Critical Yield
Assess risk
profile
Construct
investment
portfolio
Three Steps to a Personalised Critical Yield
Underwrite
Personal
Critical
Yield
Income
Shape
Impact on Critical Yield calculation
Personalised Critical Yield
Step 3
Income
12.67%
Step 2
Shape
6.45%
Step 1
Underwrite
Quoted CY
from Capped
DD quotation
0.00%
7.14%
6.51%
5.00%
10.00%
15.00%
Source: Avelo Exchange & Just Retirement Limited 16.04.14. Based on an individual aged 65, with a £100k fund, monthly in arrears, no escalation, no
value protection, 50% spouses pension, 5 year guarantee period, based on RH2 7RT postcode. An annual management charge of 2% has been
assumed when calculating critical yields.
Handset Question 2
Would you like a copy of the Critical Yield Calculator?
1. Yes
2. No
When might a conversion to annuity be considered?
Health
ATR
changed
Gtd income
now
important
LTC
Concerns re
performance
required
Legislation,
GAD, etc
Death of
spouse
Now fully
retired
Assets
depleted
Mortality
drag
Is phased conversion to annuity something to be
considered?
Additional asset growth required to counteract
the drag effect against increasing age
Drawdown becomes progressively less suitable as we age;
Annual mortality subsidy based on age of buying annuity
Additional asset growth required to counteract
the drag effect against increasing age
Exit strategies are important because of mortality drag
When should annuitisation start?
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Financial sense
of annuitising
increases
60
65
70
75
80
85
Annual mortality subsidy based on age of buying annuity
90
Conclusions
Talk to us!
Better Client
Outcome
Ask the right
Questions
Support
A useful
Benchmark
Annuities:
Still relevant and
valuable
adviser
Regulatory
Risk
How to Reduce
Handset Question 3
Following this presentation, to what extent will you
now consider changes to your review process?
1. May consider making significant changes.
2. May consider a few changes.
3. Am unlikely to make any changes.
Thank You
Learning Outcomes
 Describe the purpose of Drawdown reviews, HMRC and FCA
requirements
 Calculate relevant and personalised critical yields
 Evaluate when conversion to an annuity might be considered
 Understand what an appropriate process for Drawdown
reviews might look like
Important Information
It is our intention that the information contained within this presentation is accurate.
We have taken all reasonable steps to ensure that it is up-to-date and where relevant,
reflects the current views of our experts. However, we do not accept any liability for
errors or omissions in the information supplied and if you require clarification on
anything, our recommendation is that you contact us at the address below for
verification, or call 0845 302 2287.
Our registered address:
Just Retirement Limited
Vale House, Roebuck Close,
Bancroft Road,
Reigate,
Surrey RH2 7RU.
Regulatory information:
Just Retirement Limited (Registered in England Number 05017193). Registered Office:
Vale House, Roebuck Close, Bancroft Road, Reigate Surrey, RH2 7RU.
Just Retirement Limited is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority.