Peter's blend
This scenario is for illustration purposes only.
For financial intermediary use only.
Peter's blend
This scenario is for illustration purposes only.
For financial intermediary use only.
- Peter, 68, a retired civil engineer, is in good health and married to Alice.
- They have two adult children.
- Their jointly owned portfolio of investments includes a couple of residential buy to lets and have other assets structured to make the most of all available investment allowances.
- Peter and Alice also have individual ISA holdings and Peter has a drawdown arrangement, which he views as a key part of their inheritance tax planning, currently valued at approximately £500,000.
- Peter, 68, a retired civil engineer, is in good health and married to Alice.
- They have two adult children.
- Their jointly owned portfolio of investments includes a couple of residential buy to lets and have other assets structured to make the most of all available investment allowances.
- Peter and Alice also have individual ISA holdings and Peter has a drawdown arrangement, which he views as a key part of their inheritance tax planning, currently valued at approximately £500,000.
Allowing for his other sources of income, Peter plans on withdrawing no more than £10,000 pa on an ongoing, inflation adjusted basis from his drawdown.
He also wants to protect as much of the portfolio as possible to pass on to his children and future grandchildren. So, he’s asked his adviser to review what investment opportunities he has within his SIPP as part of their annual review meeting.
At first glance, the future outlook for the portfolio appears promising. Even with a modest withdrawal rate, it seems sustainable over the long term. Projecting forward to age 97, an age Peter has a 10% chance of reaching, and factoring in average market conditions, the residual value of the traditional drawdown portfolio could be approximately £760,000.
But Peter wants to know if that can be improved, without taking on any more risk within the portfolio.
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Peter's options
Below is an illustration comparing a traditional drawdown SIPP portfolio and a new blended drawdown SIPP portfolio. It shows how long-term portfolio performance can be improved by integrating a guaranteed income producing asset (GIPA) alongside equity and bond assets to help maximise the future value of the portfolio.
Traditional drawdown
Sipp portfolio
new blended drawdown
sipp portfolio
Traditional drawdown
Sipp portfolio
new blended drawdown
sipp portfolio
Does your client have different needs?
Click on an image to find out how a guaranteed income producing
asset could improve the outcomes for each scenario.
Does your
client have
different needs?
Click on an image to find out how a guaranteed income producing asset could improve the outcomes for each scenario.
PORTFOLIO Value
In the blended drawdown solution, 20% of the traditional SIPP portfolio is used to purchase a guaranteed income producing asset which generates an annual income of £7,141 (approximately 7.14%). This enables the withdrawal rate on the remainder of the portfolio to be reduced to just approximately 0.71% collectively securing all of Peter’s required income of £10,000 while leaving more of the SIPP drawdown portfolio to grow over time rather than provide income.
The blended drawdown solution fulfils Peter’s primary objective, which is to maximise legacy. At age 97, an age Peter has a 10% chance of reaching, the traditional SIPP drawdown plan is modelled to be worth approximately £760,000. With the new blended drawdown approach that projected value has increased to approximately £907,000, an increase of nearly 19%.
The table and graph show planning to 10% survival probability in isolation
The lower withdrawal rate enables significantly higher long-term portfolio values to be projected as the chart below illustrates:
The lower withdrawal rate enables significantly higher long-term portfolio values to be projected as the chart below illustrates:
key benefits of the new blended solution for Peter
The new blended drawdown solution could achieve an enhanced outcome for Peter whilst continuing to be in line with his ‘moderately adventurous’ attitude to risk.
Guaranteed income producing assets produces about 71% of the income he needs from 20% of the portfolio. This means most of the income is being generated from the defensive allocation (guaranteed income producing asset). By doing this, the equity allocation of the portfolio could grow unrestricted from the requirement to generate income. All supporting Peter’s objectives.
Guaranteed income producing asset income can be rolled back into the invested portfolio if the ad-hoc income is not needed in a particular year. This could provide Peter with greater flexibility.
Peter's income objective could be achieved with less strain on the portfolio, whilst enabling higher projected long-term portfolio values to help achieve his primary objective of maximising legacy.
key benefits of
the new blended
solution for Peter
The new blended drawdown solution could achieve an enhanced outcome for Peter whilst continuing to be in line with his ‘moderately adventurous’ attitude to risk.
guaranteed income producing assets could produce 67% the income Peter needs from 20% of the portfolio. This means most of the income is being generated from the defensive allocation (guaranteed income producing asset). By doing this, the equity allocation of the portfolio could grow unrestricted by the requirement to generate income. All supporting Peter’s objectives.
Guaranteed income producing asset income can be rolled back into the invested portfolio if the ad-hoc income is not needed in a particular year. This could provide Peter with greater flexibility.
Peter's income objective could be achieved with less strain on the portfolio, whilst enabling higher projected long-term portfolio values to help achieve his primary objective of maximising legacy.
Notes:
The guaranteed income producing asset is provided by Secure Lifetime Income (SLI).
Scenario numbers are illustrative only, and correct as at 11 March 2024 to show how a guaranteed income producing asset can be included alongside equities and bond assets in a drawdown SIPP portfolio.
Projections shown are hypothetical and are based on assumptions, not indicative of future performance and should not be the sole basis for investment decisions. Investment returns can fluctuate.
Example based on 68 year old, male, in good health, non-smoker, with a £500,000 total portfolio value. Traditional drawdown SIPP portfolio scenario is based on 60% Global equity / 40% UK Aggregate bonds asset allocation. New blended drawdown SIPP portfolio scenario is based on £100,000 SLI purchase, this equates to a blended model of 60% Global equity / 20% UK Aggregate bonds / 20% SLI asset allocation, total fees of 1.75%.
Figures are generated via Timeline, with rates supplied by Just using median return from 948 scenarios from 109 years of historic data. The £10,000 income has been modelled to keep pace with inflation.
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