The Oxford Risk Secure Lifetime Income solution allows financial advisers to profile their clients and determine whether their financial situation in retirement would be improved by purchasing a guaranteed income. The tool combines cashflow planning and behavioural profiling to produce a personalised recommendation for each client.
It has been designed for UK residents who can access their pension pots and are just approaching retirement or have already retired.
What is Secure Lifetime Income?
Secure Lifetime Income is a product from Just that offers a guaranteed income producing asset that could optimise portfolio outcomes when included within a SIPP. You can find out more information here.
Getting Started
To produce recommendations, your client needs to complete the following assessments:
- Financial Personality Assessment
- Financial Circumstances and Goals
- Knowledge & Experience
- Attitudes towards Retirement
Completing the financial circumstances assessment can affect the client’s suitable risk level, so it is a good idea to review this and discuss it with the client.
Cash Flow Page
The Cash Flow page projects the value of the client's investible assets over the next 40 years.
- The ‘no investments’ line shows how long the client’s investible assets would support the planned cashflows if they only kept pace with inflation.
- The pessimistic projections show returns that are between the 10th and 50th percentiles.
- The optimistic projections show returns that are between the 50th and 75th percentiles.
The incomes and expenditures that are included in the model are shown in the table below the chart. If you need to modify anything, you should open the client’s financial information in Quick Fill, or send them a questionnaire to update.
The Projections drop-down allows you to adjust the investment growth assumptions factored into the model. If you select a risk level from the drop-down, the model will assume that the entirety of the client’s investible assets are being invested at that risk level. You can also use Portfolio Risk Calculator to assign different risk levels for the client’s assets, then select their aggregate risk level of their current or proposed portfolios from the drop-down menu.
Getting the secure lifetime income recommendation
The “Secure Lifetime Income” page shows the suggested level of guaranteed income for your client. Before the suggested level can be displayed, additional information needs to be entered:
We have partnered with Just, a leading provider of retirement finance solutions, to obtain guaranteed income rates for their Secure Lifetime Income product. The projections and purchase price on the recommendations page are based on the guaranteed income rates for their product. If you don’t wish to use Just’s estimate, you can click on the Provide a Rate tab to provide your own rate.
The tool returns four figures:
Suggested guaranteed income
This is the amount of income that the client should seek to receive from any guaranteed income product. This amount is quoted after tax, or in other words, it is the actual amount they have available to spend. To calculate the approximate cost of obtaining this amount of guaranteed income, we have assumed a blended tax rate of 10% and estimated a gross cost.
Total Guaranteed income
This shows the total income the client receives from all guaranteed income sources (like state pension). It includes our suggested amount.
Investment Drawdown
This is the additional amount of income that the client would need to draw from their investible assets to meet their expenditure requirements.
Ongoing Expenditure
These are the ongoing expenditure requirements as entered by the client in the Financial Circumstances assessment. One-off expenditures are not included in this figure, so the client’s actual monthly withdrawals from their investments might vary.
Income Projections
You can change the investment growth projections that factor into the ‘After SLI graph by changing the “Projection based on” dropdown.
Frequently asked questions
My client wants to withdraw a portion of their pension pot as a tax-free lump sum. How should I handle this?
You don’t need to do anything in particular unless the client plans to spend that lump sum. For example, if they are making a purchase, this should be recorded as a one-off expenditure, or if they are paying off a mortgage, this should be reflected both in the investible assets (to record the withdrawal) and the non-investible assets section (to remove the mortgage liability).
If the client does not have plans to spend the money straight away but will leave it in a cash account, you may want to calculate the aggregate riskiness of their portfolio in Portfolio Risk Calculator.
What tax assumptions have you made in your recommendations?
We have assumed a blended tax rate of 10% for their income stream. If your client pays more tax, you may need to increase the amount of guaranteed income when getting quotes for the client, so that the customer can withdraw/be paid the amount recommended.
Why am I getting a withdrawal rate warning?
If your client does not have a large enough pension pot or has very high expenditure relative to their income, purchasing a guaranteed income may result in them drawing down faster on their investible assets than if they were to manually drawdown. In these circumstances, it is advisable to carry out further checks to determine if a guaranteed income would be suitable.
Is there a cap on the guaranteed income recommendation?
We cap the guaranteed income recommendations to around 60% of the client’s total investible assets. Variations in annuity rates may result in recommendations slightly above that limit.