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Risk of retirement multiple pots approach to income

22 August 2018

As a growing number of advisers opt to manage the investments of their clients in retirement in separate pots, Thesis Asset Management said they must ask themselves important questions before deciding on this approach. 

According to Thesis, there has been a lack of innovation in the retirement space and as such taking a ‘pots approach’ appeals to both advisers and clients, with 79% of clients happy to see their retirement strategy in multiple pots. Yet, this approach can be time consuming and carries implementations risks for clients, Thesis warns.

It believes advisers need to ask the following:
• How much and how long do you leave money in short term pot
•What is the optimum time and amount?
• How much is needed in equities for the long run to manage inflation and longevity?
• Am I consistent with all clients i.e is there a clear approach which all advisers follow?
• How do I make changes for clients needing the same thing at the same time with an advisory model?
• Do I want to have responsibility for big asset allocation decisions?
• If I do, how do I implement it quickly, consistently and fairly for all clients?

Lawrence Cook, director of marketing and business development, Thesis, said: “With pension freedoms now well embedded, there is much discussion about the best way to ensure we do not run out of money in retirement. While there are many options out there in the market for advisers and consumers, it is the pots approach that seems to be the most effective in addressing the risks investments face in the decumulation phase.

“The pots approach is in effect a method of providing some fire insurance in case the worst happens in the short term and leaving enough in riskier assets to ensure clients do not outlive their wealth. The challenge then is to mechanise the delivery of a service so that advisers can service more clients and clients can gain greater comfort that their wealth in retirement will last.”

Earlier this year, Thesis launched its Managed Income Service, a decumulation portfolio service seeking to deliver long-term income while reducing near term risks.

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