Tideway Wealth has launched a ‘dual account drawdown’ service to allow clients approaching and in retirement to navigate the impact of stock market volatility on their investment portfolio.
The service splits a client’s pension pot into two separate investment accounts that can be accessed independently to make withdrawals.
The FCA's retirement income advice review acknowledged ‘sequencing risk’ and whether wealth managers should provide clients with a withdrawal guide to help determine sustainable income withdrawal levels.
In this new solution the first account will be invested in short-term, less-volatile investments which will seek to deliver a smooth lower return and will fund the client’s regular pension withdrawals through retirement.
While the second account will be the client’s longer term investment portfolio to generate capital growth and income.
This capital growth and income will move into the first account over time to keep it topped up, taking profits wherever possible.
James Baxter, founder of Tideway, said: “In the example we created using a hypothetical stock market return with behaviour in keeping with historic stock market returns, the dual account process created a 66 per cent up lift in returns as compared to the single account.”
The chart shows a dual account solution compared to a single account drawdown product.
In this case 25 per cent of the pension drawdown pot is placed into a low risk account at offset with dividend income and profits wherever possible from the equity fund investment in the second account.
In this solution capital withdrawals from the second account can be timed and will not happen automatically every month.
“That’s the difference between fully exhausting your account over 25 years and having your original capital still in the account to pass on to the next generation.”
“We think one day all drawdown products will be built this way.” Baxter added.
alina.khan@ft.com
