We have been talking about pension freedoms for two years and it has been a year since people were able to use these new freedoms. A dip in the market has posed problems for many investors and shows that sequencing risk (the order of returns) can play havoc with the value of a portfolio, especially when an income is also being taken. George Houston discusses how Mattioli Woods has helped its clients through this period…
What is your experience of the take-up of the new pension freedoms?
"We have certainly experienced an increase in conversations with clients wanting to fully understand the new freedoms and how these impact on their options. Very few have opted to cash in the entire value of their pension savings – there have been some but these have tended to be for very specific reasons! In reality, it has been mainly those with smaller pension pots that have been tempted by the option of drawing their entire fund in one go."
How are you handling the drop in value of investments since this time last year?
"Any client entering the drawdown phase with their pensions is made aware of the risks they are taking on and they understand that there will be challenging times form an investment perspective. Getting to the stage of drawing benefits has generally been a long term investment for them in the first place so they understand that the long term benefits of investing can outweigh short term volatility.
"It is worth noting that not all areas of investment portfolios have dropped – for example, commercial property and absolute return strategies are two areas that our clients have benefited from in real terms. A lot of our clients have property and this has helped maintain their pension in difficult equity/bond markets.
"Looking at a client’s overall wealth management plan as we do, pensions are only part of the equation and regular reviews help to keep clients informed of what has happened in markets, how this has impacted on their own plans’ investment performance and allows for a discussion around income sources for the year ahead. Of course, there also is an added IHT advantage in turning down/off pension income if a client is under age 75 and a well-rounded plan will offer sufficient flexibility to draw tax efficient income from other sources."
What is your advice to clients in this situation?
"Each client will differ depending on the construction of their overall plan. Managing risk and trying to mitigate the impact of market turbulence through well diversified portfolios has helped our clients in the past and we will aim to deliver the same outcome in the years ahead."
