In this article, we highlight why a smoothed With Profits approach could be key for advisers helping their clients to navigate an appropriate investment strategy in a decumulation phase.
Establishing the right investment strategy to deliver a sustainable income through retirement is no mean feat, particularly during periods of economic uncertainty and market volatility. This is a crucial point for those clients considering consolidating pension pots as part of their retirement planning – how can they secure the retirement outcomes they seek?
Where a pension pot is transferred to it will, in part, be influenced by the underlying reasons prompting the client and their adviser to consider proceeding with a transfer in the first place.
For example, they may have concerns over the resilience and financial strength of the company or provider managing their pension scheme, or health issues may have shortened their life expectancy, prompting them to seek a pension that allows them to drawdown more, in a shorter period of time.
The decision will also be influenced by the specific needs of retirement income – chiefly, delivering income that lasts and avoiding major fluctuations in value, which can be hugely concerning to someone in decumulation.
Smoothed With Profits funds may help investors meet these needs– providing what could be an ideal option for investors seeking a steady income in retirement. Here’s how.
Why smoothed With Profits?
The challenge for advisers with identifying funds for retirement is balancing three closely related factors – risk, return and volatility.
As always, there’s a greater chance of securing greater investment growth by taking more risk. But this may not be palatable for a client that needs to rely on the income to last throughout their retirement – an amount of time that is nearly always an unknown.
It can also mean more volatility – a factor that clients may simply not be comfortable with. They will likely be wanting to protect the value of their transferred pot as much as possible – reducing exposure to huge swings in value and the danger of pound cost ravaging.
Smoothed With Profits Funds, by their very structure, work to tackle the volatility challenge head-on.
They can deliver consistent returns to help protect against short-term fluctuations in value through a mechanism called ‘smoothing’.
This works by holding back some returns in times of strong performance and then using these to help cushion any fall in value in times of poorer performance. It’s a unique feature that ultimately means investors can worry less about the day-to-day ups and downs of the market. The right With Profits fund, from the right provider, can also help address advisers’, and clients’ considerations of performance.
For example, Wesleyan’s with Profits Growth Pension Fund Series A invests in a mix of UK and international equities, property, cash and other assets.
Because of Wesleyan Assurance Society financial strength, we can – alongside lower-risk assets – hold a significant amount of higher-risk investments.
These, in turn, help to power long-term returns. Ultimately, in combination with the fund’s smoothing mechanism, this means clients may simultaneously benefit from reduced volatility, while also working towards real growth.
The platform advantage
With Profits funds have always been available for pension transfers through their individual providers. But now they are available to invest in on a platform – with Wesleyan’s With Profits Growth Pension Fund Series A available through Novia.
This means advisers can seamlessly invest their clients’ assets in With Profits in the same way that they do any other fund or asset – and benefit from Novia’s strength of service, reporting capabilities and continued investment in platform enhancements, such as its automatic phased drawdown functionality.
On Novia, Wesleyan’s With Profit fund, unlike many With Profits funds, has a daily unit price, daily smoothing and no market value reductions or corrections, making it simple for clients and advisers to understand exactly what investments are worth at any time.
And there’s a chance for investors to benefit from Wesleyan’s mutuality, both in the form of an intrinsic focus on the needs of the adviser and the client, and through having the chance for investors to gain a share of additional distributions when the company is profitable – directly sharing in its success.
The value of investments and any income can go down as well as up. Investors may get back less than they invest.