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Life assurer heat map plots income drawdown sustainability

19 November 2018

Less than half of income drawdown customers are taking an income with the likelihood it will last them for the rest of their life, Royal London has said.

According to figures published by the pensions giant, 47% of customers have more than an 85% chance of their income lasting them for life, while 53% have a higher risk of running out of income.

However, Royal London said some younger clients will have purposely chosen to aggressively draw their pot down to give them an income before other pension pots become available at age 65.

The figures were derived from Royal London’s Drawdown Governance Service, which calculates an income sustainability score for advisers’ clients, tracks their progress against this score on a quarterly basis and highlights if any changes occur. Royal London said the service enables advisers to recognise clients who are potentially at risk of not meeting their financial objectives.

The group also developed a heat map to assess the sustainability of different withdrawal rates over different terms and said that over a 15 year term a 6% withdrawal rate is highly sustainable (see table below). However, as the term increases this figure becomes unsustainable.

Lorna Blyth, head of investment solutions, Royal London Intermediary Pensions, said: “For some income drawdown customers income sustainability is not so important as they have a high capacity for loss. For others it is extremely important that they understand the risk around potentially running out of money.”

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