Standard Life has created Standard Life Active Retirement, a ready-made drawdown option which is designed to spread investment risk while aiming to grow savings throughout a person’s entire retirement.
Over the next ten years, around GBP700 billion – half of the UK’s annual GDP – is expected to flow through the financial system as those born between 1948 and 1964 begin to retire.
The 6 April pension freedoms have shifted savers’ focus from a single, fixed goal (purchasing an annuity) to an investment approach designed to achieve a series of goals with different time windows.
Jenny Holt, Head of Investment Solutions at Standard Life, says: “Post-retirement solutions must now be designed to make pension savings last and give savers confidence to invest and to stay the course during retirement. Investment strategies that serve people well when growing their pension funds are not likely to be appropriate when drawing an income in retirement. We recognise that people will use their retirement savings in a variety of ways and they need help building a portfolio to provide a regular income for the rest of their lives, for a fixed period of time, or to take ad hoc payments as and when needed.”
Standard Life Active Retirement’s portfolios, designed for non-advised customers, use a three-pot model – each pot with differing risk levels, in which allocation is automatically set based on information about the customer and their expected withdrawal patterns.
Pot 1: very low risk investments designed to remain fairly stable
Pot 2: investments selected to provide a better return while still remaining relatively low risk
Pot 3: medium risk investments selected to provide a higher return over the longer-term
The shorter the time horizon, the bigger the allocation Standard Life Active Retirement makes to lower-risk funds. Customers have the option to change withdrawals or reset allocation at any time.
Research indicates that savers need to be realistic about what level of withdrawal is sustainable; inflation is a key risk in retirement; income flexibility is key to making savings last longer and having a withdrawal plan helps.
Standard Life Active Retirement aims to maintain spending power, enable people to remain engaged in their investments and manage withdrawals affordably.
Volatility in drawdown can cause ‘pound cost ravaging’ and poor returns received early in retirement can lead to worse outcomes. So the investment journey is as important as the total return earned. Increasing the consistency of returns improves outcomes and taking less risk in the early years can help improve sustainability in bad scenarios.
Standard Life Active Retirement aims to sustain retirement spending by reducing the effect of investment risk through broadly diversified portfolios and holding low risk assets in the early years after retirement.
The firm has built on existing expertise within the business to create a well-resourced Expert Centre. Qualified UK-based experts can guide or advise customers through their options over the phone with a personalised service based around their own circumstances.
The Centre is fully integrated with the online service and provides initial support to help customers work out which retirement options are right for them; full support to set up the customer’s chosen option; and ongoing access to expert support for customers who remain invested, with the option of regular plan reviews to help customers stay on track. Standard Life will also run regular retirement road shows to give customers the opportunity to meet experts face-to-face.