Latest News

  • Home /
  • Latest News

Prudential - Smooth Operator: can smoothed funds support effective client outcomes within income drawdown?

7 February 2022
Since the introduction of pension freedoms in 2015 brought such big changes to the UK retirement landscape, the problem of decumulation strategies continues to be an ongoing challenge for advisers. Annuities have ceased to be the default choice at retirement whilst the flexibility offered by income drawdown means it has grown in popularity amongst advisers and their clients.

Of course, when it comes to drawdown, understanding the client’s personal circumstances, assessing their attitude to risk and capacity for loss are a key part of an adviser’s suitability process to ensure a client’s needs and objectives are met as fully as possible.

However, numerous other factors also need to be considered when a client reaches retirement. These include sequencing of return risk, income and expenditure requirements, estimating a client’s life expectancy and possibly calculating what a sustainable withdrawal rate could be, so funds are not eroded prematurely. As Income Drawdown is often a long-term commitment, advisers will usually need to undertake regular reviews with their clients to ensure the strategy remains appropriate. The adviser will also need to identify what is essential income, as well as what might be classed as ‘lifestyle’ or ‘discretionary’.  Making appropriate investment decisions at this point is of crucial importance as there is no single investment strategy which is suitable to meet clients’ changing needs.

Assessing appropriate asset allocation
All of this may form part of an advisers Centralised Retirement Proposition (CRP). With a huge range of assets to select from, when it comes to considering an appropriate investment approach within income drawdown, one area which has proved a popular choice with advisers is the PruFund range. Reasons for this include the smoothed nature of the returns, the diversification its multi-asset nature brings and the predictability of the Expected Growth Rate (EGR) which helps to support the optimum retirement income in drawdown.

Smoothing means that the EGRs reflect the long-term view of the funds growth and Unit Price Adjustments (UPA) allow any necessary adjustments to help keep the fund growth on track, in line with the EGR. This can be very useful when it comes to cashflow modelling to show a predicted rate of return, although stress testing will usually form part of this.  Of course, there may be occasions where the smoothing process has to be suspended for one or more PruFund funds for a period of consecutive days, to protect the With-Profits Fund and the clients invested in it. The smoothing mechanism can help to iron out day to day fluctuations in the underlying values but will incur downward Unit Price Adjustments (UPAs) when there is a significant correction in underlying values. However, as markets return the values will also benefit from upward UPAs assuming the underlying values trigger the mechanism to do so.

Good to note that the value of any investment, and any income taken from it, can go down as well as up so your customer might not get back the amount they put in.

Do historic returns tell us anything?
While we know that past performance cannot be used as a reliable indicator of future returns, it is nonetheless useful to reflect on analysis of comparative historic returns within the PruFund range which Pru has carried out. Their analysis demonstrates that sustainability of income has been achieved using PruFund which supports the consideration of using such smoothed funds as part of a client’s income drawdown portfolio. Check out the full details of their analysis below.

To find out more about PruFund, please click here
 
PruFund since Pension Freedoms began - how has it worked? Download full details including past performance analysis HERE

 

30 December 2024

An evolving industrial landscape: post-election insights from the US


30 December 2024

The outlook for 2025


10 December 2024

Beyond the Budget – Unpacking IHT changes for your clients


4 December 2024

Triple Point Venture VCT - Early bird discount extended


3 December 2024

A Postcard from Boston: Onshoring, AI and the regulation of water


3 December 2024

The second Nucleus UK Retirement Confidence Index


25 November 2024

Investing alongside science to deliver a sustainable world


11 November 2024

Triple Point - What Budget changes to Business Relief mean for clients


4 November 2024

Edwards Lifesciences: shaping the future of cardiac care


28 October 2024

Gene therapy is set to change the face of medicine


22 October 2024

What China’s economic stimulus measures could mean for investors


16 October 2024

Triple Point - Venture VCT announces 2p tax-free dividend


7 October 2024

Triple Point - VCTs: a powerful way to help clients pay less income tax


2 October 2024

The next smart move for your clients


26 September 2024

Puma VCT 13 launches new £50m fundraise


24 September 2024

3 steps advisers can take to close the gender pension gap


19 September 2024

Puma Investments- Launches Puma AIM VCT


18 September 2024

M&G Wealth - Six ways to keep clients invested for long-term success


10 September 2024

M&G Wealth - Dash to cash: why it pays to think longer-term with your client’s money


6 September 2024

Join the Defaqto Future of Advice conference


2 September 2024

Triple Point - Understanding Venture Capital Trusts (VCTs)


28 August 2024

M&G Wealth - Keeping it smooth since 2004


19 August 2024

Prudential - Cost reductions and changes to our Strategic Asset Allocation


15 August 2024

Liontrust - Building a sustainable future with social housing


15 August 2024

Puma Investments - Join our CPD webinar: Closing the gaps: IHT and Estate planning featuring Tony Wickenden


7 August 2024

Liontrust - Plugging into the energy transition


6 August 2024

Defaqto - The Future of Advice - The Defaqto Adviser Conference


26 July 2024

Hello Kitty: A big cat in the investment universe?


24 July 2024

Liontrust – A postcard from Japan: enabling the sustainable transition


18 July 2024

Liontrust - Does a brighter future for housebuilding lie ahead?


16 July 2024

Triple Point – Holistic Estate Planning Strategy for Clients


8 July 2024

Triple Point – Join our CPD webinar: helping investors plan for big life events


1 July 2024

Intergenerational wealth planning for difficult times


24 June 2024

Liontrust Sustainable Investment: Annual Review 2023


19 June 2024

Investing in the energy transition


18 June 2024

Triple Point is partnering with ESG Accord to host a webinar: "A Practical Guide to SDR and Investment Labels for Advisers."


17 June 2024

Latest PruFund monthly investment updates


13 June 2024

Defaqto MPS Comparator: the UK's only accurate MPS performance tool


12 June 2024

Hear about Triple Point Venture VCT - 18th June 2024


6 June 2024

The Nucleus Retirement Confidence Index


24 May 2024

Join us for our Breakfast Briefing with Foresight! June 4th at 9:30am


17 May 2024

Looking forward with optimism


8 May 2024

The retirement income advice red paper


8 May 2024

Liontrust Views: Why smaller can be beautiful for US equities


7 May 2024

CPD Horizon Series: Tax planning for life’s key events


18 April 2024

Liontrust: Opportunities from secular growth trends


15 April 2024

Defaqto Roadshow - The challenges and opportunities of pursuing Income


11 April 2024

Liontrust: US small caps are overlooked and undervalued


4 April 2024

Q1 2024 Rebalance – we think the backdrop is good for stocks


21 March 2024

25 years of ISAs: a quarter of a century of tax-efficient savings and investing


4 March 2024

Stepping out of cash needn’t be daunting


26 February 2024

Managing lifetime wealth – trends in the UK retirement advice industry


23 February 2024

Empowering advice for women in finance


14 February 2024

Tech Matters is here!


5 February 2024

Defaqto upcoming event – Engage webinar 22nd February


1 February 2024

The gender divide in retirement confidence


30 January 2024

SDGs in focus: climate and nature


26 January 2024

Tax year end prep. We’re here to help.