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Overcoming a lack of resilience in income drawdown products

Dr Catherine Donnelly,Tuesday 20 April 2021

Part of the Finance and Investment Communities Lifelong Learning Programme

Income drawdown products offer an investment strategy to generate an income in retirement. However, for those needing to decumulate their capital to provide a sufficient income in retirement, sequencing risk is high. This is the risk that poor returns are experienced when capital is highest (in the first part of the decumulation phase) and good returns when capital is lowest (in the last part). It is very difficult to recover from this risk, if it is realised. This means that income drawdown products are not very resilient for those needing to decumulate their capital.

A simple way to reduce sequencing risk is to rely less on investment returns. This is achieved by pooling retirees' longevity risk. By doing so, retirees can achieve a higher expected income, paid for longer. They can do this and simultaneously take less investment risk.

Dr Catherine Donnelly will present the basics of the structures for pooling longevity risks and summarise recent research results in this area. Future research will also be outlined. This is work under a research programme funded by the IFoA's Actuarial Research Centre, called 'Minimizing longevity and investment risk while optimising future pension plans'.

Presentation "Pooling longevity for a better retirement income: How many people are needed?" at the University of York/Yorkshire Actuarial Society seminar series.

1 March 2021

Presentation "Pooling longevity for a better retirement income: how many people are needed?" at the U. Nebraska-Lincoln Snell seminar series.

26 February 2021

Article "Are tontines the solution to the decumulation conundrum?" Sandre Wolf, Mallow Street. 

3 September 2020

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