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Overcoming a lack of resilience in income drawdown products

Tuesday 20 April 2021 10:00 - 11:00

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'.

This webinar will run from 10.00 - 11.00 (UTC)


Dr Catherine Donnelly

Dr Catherine Donnelly is an associate professor at Heriot-Watt University, Edinburgh and Director of the Risk Insight Lab.   She has published world-leading research on pooled annuity funds and related longevity-risk sharing structures.  She is leading a major research project funded by the Institute and Faculty of Actuaries’ Actuarial Research Centre on pooled annuity funds and CDCs.  An actuary who has worked in pension consultancies before academia, she has a keen interest in developing workable solutions to improve people’s financial situation in retirement.