Research from investment, protection and retirement specialist LV= highlights how millions of people are worried about stock market volatility and running out of money in retirement.
Figures from the LV= Wealth and Wellbeing Research Programme reveal that withdrawing money from a pension is a problem for many people who do not understand how to ensure their pension fund lasts the rest of their life. The research found:
One solution that helps retirees avoid running out of money in retirement and addresses their concerns about stock market volatility is to create a blended retirement portfolio combining a fixed term annuity and a smoothed investment fund.
Rising interest rates have led to an increase in annuity yields. In January 2023, LV=’s fixed term annuity yields were 2.5 to 3 percentage points a year higher than in January 2022.
The benefits of a blended approach
The fixed-term annuity can be used to cover basic needs and deliver a secure income for a selected period of 3 to 25 years. Investing the rest in a smoothed investment fund offers the potential of lower-volatility growth.
The benefits for financial advisers
This approach offers flexibility to advisers and their clients. Advisers can tailor a retirement portfolio for their clients that produces the required amount of guaranteed income and potential for future growth.
It also reduces risks for advisers:
“Drawdown customers often want the best of both worlds. They want to enjoy a certain level of income while retaining control over how they run their retirement funds but at the same time minimising the risk of a market crash causing them to run out of money in retirement.
“Blended annuity and drawdown portfolios are a way of balancing the trade-off between controlling a retirement portfolio to benefit from future investment growth while reducing the effects of market volatility.
“The idea of mixing annuity and drawdown solutions customised to an individual’s preference is not new, but the recent interest rate changes and stock market volatility has highlighted the importance of considering annuities as a way of underpinning a retirement income.
“However, this is not an option a customer can typically navigate on their own. High-quality financial advice is vital when constructing such solutions to ensure each customer is comfortable they have the right balance of risk and flexibility that is right for them in order to enjoy the retirement they want.”
About LV=’s Smoothed Managed Funds
The LV= Smoothed Managed Fund range is designed to provide steady long-term growth over a period of at least five years. The LV= smoothing process doesn’t mean investments will not drop in value. Smoothing will not prevent losses in longer term falling markets and investments may go down as well as up. The smoothing process has continued to perform as intended through the extreme volatility seen as a result of Covid-19. However, in exceptional conditions (for example, if the underlying price is 80% of the averaged or ‘smoothed’ price) the fund may be valued on the underlying price. We also reserve the right to do this at other times.
Please remember the smoothed managed funds are a stock market related investment, the value can go down as well as up and your client may get back less than they invested.
About LV=’s Fixed Term annuities
LV=’s Fixed Term Annuity - the LV= Protected Retirement Plan - offers a guaranteed income solution, guaranteed value at maturity or combination of both over a range of terms. This enables the plan to be tailored to an individual client’s needs and creates more flexibility and access to their money than a standard annuity. The fixed term is selected at outset but a break clause option means it can be cashed in at any time.
Notes to Editors
LV= is a leading financial mutual and serves over 1.16 million members with a range of financial products. When we started in 1843 our goal was to give financial security to more than just a privileged few and for many decades we were most commonly associated with providing a method of saving to people of modest means. Today we follow a similar purpose, helping people to protect and provide for the things they love, although on a much larger scale and through a wide range of financial services including insurance, investment and retirement products. We offer our services direct to consumers, as well as through IFAs.
LV= and Liverpool Victoria are registered trademarks of Liverpool Victoria Financial Services Limited (LVFS) and trading styles of the LV= Group of Companies. Liverpool Victoria Financial Services Limited, registered in England with registration number 12383237 is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, register number 110035. Registered address: County Gates, Bournemouth, BH1 2NF.