Annual Income Drawdown illustration

Fermion

I've just had my Annual Income Drawdown Illustration through from HL which I assume is a mandatory requirement from one of the regulatory bodies or the Government for HL. What a complete waste of time and paper - the statements and projections are complete tosh!

The illustration is based on my current drawdown rate 3.35% and provides mainly doom and gloom predictions of my drawdown pot for the next 30 years based on respective growth figures of 2%, 4% and 8%. It takes no account whatsoever of (a) the type of funds I've invested in, (b) the average yield of these funds over the last year, and (c) the capital growth in the value of the funds since drawdown.

In practice, the capital value of my Drawdown pot grew by 16% last year and achieved a 4.1% yield -- albeit in favorable market conditions.

Does anyone else feel like me these these "Standard" regulatory illustrations are no longer fit for purpose?

PeacefulWaters

Fermion wrote: »

I've just had my Annual Income Drawdown Illustration through from HL which I assume is a mandatory requirement from one of the regulatory bodies or the Government for HL. What a complete waste of time and paper - the statements and projections are complete tosh!

The illustration is based on my current drawdown rate 3.35% and provides mainly doom and gloom predictions of my drawdown pot for the next 30 years based on respective growth figures of 2%, 4% and 8%. It takes no account whatsoever of (a) the type of funds I've invested in, (b) the average yield of these funds over the last year, and (c) the capital growth in the value of the funds since drawdown.

In practice, the capital value of my Drawdown pot grew by 16% last year and achieved a 4.1% yield -- albeit in favorable market conditions.

Does anyone else feel like me these these "Standard" regulatory illustrations are no longer fit for purpose?

They are only ever an example. But when your 16% gain one year can be smashed apart by a 25% fall the next, what sort of projections do you consider appropriate?

OldMusicGuy

I like to make myself smile by looking at pension projections from the early 90s that told me that if I had 321,000 in my pot I would get a pension of 40,600 per annum. As I now have more than double that in my pot, I should be retiring on over 80K per annum! These illustrations were never worth the paper they were written on because no-one can make valid projections into the future.

dunstonh

What a complete waste of time and paper - the statements and projections are complete tosh!

Projections use a range of assumptions that are set by the FCA. Some of the assumptions the FCA insist on are pessimistic. However, they are at that level for good reason. Future planning based on low assumptions means the chance of failure is low. No-one is very unhappy if the outcome beats the projection. However, they are if it is the other way around.

The illustration is based on my current drawdown rate 3.35% and provides mainly doom and gloom predictions of my drawdown pot for the next 30 years based on respective growth figures of 2%, 4% and 8%.

Remember that projections factor inflation in and you will be increasing your drawdown rate over time to reflect that.

It takes no account whatsoever of (a) the type of funds I've invested in, (b) the average yield of these funds over the last year, and (c) the capital growth in the value of the funds since drawdown.

And quite right it shouldnt. HL are not financial advisers (in this respect). They are a product provider. Financial advisers can do stochastic modelling but providers cannot.

However, it will take into account capital growth you have had because it will project from the current value. A value that is higher because of returns in a very good 12 months. Just as when you suffer a 30% loss in value, they will project from that lower value.

Does anyone else feel like me these these "Standard" regulatory illustrations are no longer fit for purpose?

Partly yes and partly no. They are useful for people that dont understand investing and are prone to thinking they will get more than they think because of one year of good performance. They have to have a standard layout and comply to regulatory standards. That brings limitations.

Remember these are not a projection of excellence. These are a projection assuming worse than typical but totally possible.

If you want stochastic modelling then use an IFA or buy your own software that does that for you. However, no option is perfect.

Fermion

They are useful for people that dont understand investing and are prone to thinking they will get more than they think because of one year of good performance. They have to have a standard layout and comply to regulatory standards. That brings limitations.

Yes I suppose I understand the rationale but it really worries me if people thinks it OK to not monitor their drawdown pension pot on a regular basis but only look at a crude annual illustration to made important decisions. Most people would think it totally irresponsible not to regularly review their bank statement and balances and yet their pension pot is typically a far greater financial asset then their current account.

dunstonh

Fermion wrote: »

Yes I suppose I understand the rationale but it really worries me if people thinks it OK to not monitor their drawdown pension pot on a regular basis but only look at a crude annual illustration to made important decisions. Most people would think it totally irresponsible not to regularly review their bank statement and balances and yet their pension pot is typically a far greater financial asset then their current account.

The majority of drawdown cases are done through advisers. The adviser would carry out the monitoring. Those that DIY take on that responsibility for themselves. If they DIY badly then it is their own fault. I know that sounds blunt but why should financial services DIY be any different to other types of DIY?

sandsy

dunstonh wrote: »

The majority of drawdown cases are done through advisers. The adviser would carry out the monitoring. Those that DIY take on that responsibility for themselves. If they DIY badly then it is their own fault. I know that sounds blunt but why should financial services DIY be any different to other types of DIY?

I'm not sure the majority of drawdown is done via advisers any more. It's the case that most people don't take advice when accessing their pension. Non- advised drawdown is huge since pension freedoms were introduced.

As for projections, well done to the OP on actually looking at it and questioning it. The vast majority of people simply don't have a feel for how long their fund would last given a specific drawdown rate and I think the projection at least gives them that. Whilst there are a lot of failings with projections for those who seek more than the basics, the fact is that most people simply don't engage with pensions. Projections provide a simplistic view for those people.