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Royal London flags drawdown impact of 10% market fall

9 December 2018

Royal London has highlighted the impact for clients using drawdown, warning they must ensure they take a sustainable level of income to maintain a resilient portfolio during periods of investment volatility, or risk running out of funds. 

The mutual insurer said that if a person with £100,000 invested over a 25-year term took an income of 4% a year, a 10% fall in the markets would see their income sustainability score drop from 92.6% to 81.5%. However, if the same person took an income of 5% per year, they would expect to see their sustainability score plummet from 55.1% to just 28%.

According to Royal London’s Drawdown Governance Service, which calculates income sustainability, a score of 85% or more is required to leave someone with a high degree of certainty that their income will last.

Commenting on the figures, Lorna Blyth, head of investment solutions, Royal London, said: “Long term investors must be aware that at times their investments will be subject to periods of investment volatility but that there are investment strategies available to help mitigate any potential damage.

“Ensuring income is being taken at sustainable levels is an important part of this and customers can work with their advisers to assess their portfolio and ensure they are taking out an income that meets their needs over the long term and is sustainable through bouts of investment volatility.”

The Drawdown Governance Service from Royal London will calculate an income sustainability score for adviser firm clients, and enable them to track the clients’ progress against this score every quarter and highlight if there are any changes.

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