044 | Income in retirement

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  • Mike Hammond, Sales Director, Premier Asset Management
  • Simon Evan-Cook, Senior Investment Manager, Premier Asset Management

Learning outcomes:

  1. The future of annuities
  2. The trends driving the demand for alternative income products
  3. The role of the multi-asset funds in providing a stable alternative income source
  4. COBS 9.4 Suitability reports

    Prudential tools & calculators

    FCA thematic review on annuity sales (Dec 2014)

    FCA occasional paper No.5 (Dec 2014)


Learning outcomes: To understand and describe: 1. The future of annuities. 2. The trends driving the demand for alternative income products. 3. The role of the multi-asset funds in providing a stable alternative income source. Tutors on the panel are: Mike Hammond, Sales Director, Premier Asset Management Simon Evan-Cook, Senior Investment Manager, Premier Asset Management Trends in retirement income MIKE HAMMOND: Well I think there are a number of things that are driving demand. First of all is that we’re seeing a significant increase in the number of people retiring. You know, baby boomers, over the next five years the expectation is that 80% of the world’s assets will be controlled by the baby boomers. So clearly we’re moving into a deaccumulation phase, having been in an accumulation phase within the industry for a number of years. And I think secondly the demand for natural income is being driven by the fact that people are now beginning to live a lot longer. So life expectancy is far greater. So if you go back and have a look at the graph that you can see there, back in 1983 there were just over 190,000 people in excess of the age of 90, and as we move through to 2013 we have in excess of 500,000 people over the age of 90. So clearly there is an increase in demand for long term income solutions. And then on top of that we’ve got all the announcements that have been made in the Budget recently, which has resulted in people having more flexibility around their pension funds, releasing their pension funds, and therefore people looking for alternative solutions to provide them with capital growth as well as income. PRESENTER: So we’ve got this new world of retirement income, does that mean it’s the end for annuities? MIKE HAMMOND: I don’t think it’s the end for annuities. Clearly the issue around the annuity market is at the present moment in time we’ve got a low interest rate environment, which is not great for annuities. You’ve got the fact that you can’t access the capital. But clearly some of the benefits of annuities are that they provide you a guaranteed income and there will be people that look for annuity in an environment where they want to make sure that their income is guaranteed. And I think they’ll probably be utilised as well later on in the retirement cycle. PRESENTER: So you could see a point where people are using annuities to pay some of the basic costs of living, utility bills and so forth, and then you’d use your investment portfolio to see what you could generate above that. MIKE HAMMOND: Yes. I mean I think again the at-retirement market is unbelievably complex in terms of advice for clients, and there will be some clients that will accept that they need and want guaranteed income, and there’ll be other clients that are prepared to take some additional volatility risk with their income, which means that you can look at natural income type solutions. PRESENTER: Simon, if I could you in here, annuities are backed traditionally by gilts, so are we going to start looking at very different types of income generating asset if you’re not in an annuity? SIMON EVAN-COOK: I think you have to, yes. I mean gilts, as Mike said, play a role, a very important role because certainty of income is very important. But is it so important that people will pay a very high price for that with the corollary of that, that high price being that you’re getting a very low income for that as well. So there will be an opportunity for investors to move up the risk scale a little bit, and to be able to use different assets that are not government backed, that maybe might be considered to be a little more risky, although I would argue not in all cases, to generate a higher income from that investment. So there are more options out there for people to generate a more interesting and useful retirement income. PRESENTER: And, Mike, does this mean then that you can almost be investing to create estate planning issues 20, 30, 40 years out? MIKE HAMMOND: Well I think obviously the changes in the legislation on the pension side have created estate planning opportunities, and again that’s all part of a financial advice process, so it creates more opportunities for clients and advisers alike. Inflation as a long term risk to retirement security PRESENTER: Well, from what you’re describing, it’s a world where there’s an awful lot to think about as you reach retirement, you’ve alluded to that earlier. I mean let’s bring up our slide there, talk us through some of these key issues. MIKE HAMMOND: Well I mean these were a range of issues that we considered when we were looking at it from an investment perspective. Clearly there are many other issues that clients need to look at from a financial planning perspective, but you’re talking about the source of income, where is the income being generated from, which is very much the skills of the fund manager. I think we’ve already talked about the guaranteed versus non-guaranteed income. Life expectancy, which I think is a major issue because the plan is that much longer than it’s traditionally been. Inflation, the effects of inflation, you know, do you really want a fixed income at retirement when your retirement could be 30 years plus? Clearly not I would have thought. PRESENTER: I was going to say, have you got any rules of thumb as to what even low level of inflation can do to a fixed income over 20, well you talk 20, 30 years? SIMON EVAN-COOK: Yes, we do. If you look at what’s currently happening, you take cash as a very good example of the most basic fixed income asset that you can have, and what inflation’s been doing to that over the last five, six years or so, since we’ve had those low interest rates in place. Essentially what’s happening is if you’ve got a low fixed income, let’s say you retire with £500 per month from whichever investment that you’re receiving your income from, you’ve got to hope that inflation doesn’t rise significantly because you’re still going to have that £500 per month in a year, in 10 years, 20 years, 25 years depending on how long you live for. And obviously that £500 is not going to buy you as much in 10 years’ time as it buys you today, so your standard of retirement will be degrading over time. So the cash chart we’ve got here illustrates that quite nicely, just how actually you’re making negative return from cash when you factor in the inflation rates we’ve seen over the last five years. PRESENTER: We’re just bringing that chart up, we’ll slide back to the other chart in a minute but yes, so again talk us through, you’re essentially making negative returns there, and have been. SIMON EVAN-COOK: What you’re seeing there, you’re seeing the financial crisis and this blue line shows you the return effectively in real terms you’re receiving from cash. You go back to 2007 and 2008 when interest rates were positive, inflation was relatively lower than that, you were able to make a positive return from cash. But fast forward to the financial crisis, interest rates obviously dropped very steeply at that time. Inflation, while it dropped in the short term, has since recovered and has been positive to one degree or another ever since, meaning that the very low rates you’ve received on cash have been negative when you take into account that prices have been rising ever since then. The impact of interest rates on income assets PRESENTER: Mike, bring you back on that list, let’s bring that up now. Next one is interest rates, and again we’re in a period now where rates are incredibly low, 5, 10, 15 years’ time they might be in a different place. How does that affect the picture of how you invest? MIKE HAMMOND: I think clearly that’s an impact, and I think when we talk about the journey that a client goes along then clearly if interest goes back to normal, normalised interest rates, whatever that may be in the future, then clearly as part of the financial planning process you do need to take into account where interest rates are and what your alternative investment strategies could be at that given time. So it’s all about taking the client on the journey, which very much plays into the financial planner’s hands in terms of the process that they go through what could be a 30 year period. A client’s changing attitude to risk over time PRESENTER: And the next one up we’ve got attitude to risk; is that something that tends to change as people get older? MIKE HAMMOND: Yes, I think what you’ve got there at the bottom of the slide is a number of issues which I think are more relevant to the financial adviser in discussion with the client. So capacity for loss and attitude to risk, you know, if you’re an income investor, it’s not necessarily around your capacity for loss or your attitude to risk in terms of your capital; it’s more in terms of your income. So what is your capacity for loss in relation to your income stream, which is clearly more important for a client who’s investing for income. So again how does the IFA, the financial adviser measure that? We’ve got sequence of return risk, which we can talk about in a moment, and natural income versus encashment. And they’re considerations for the financial adviser in terms of how they’re going to generate the income for the client. And clearly how do you choose an income fund? So for a financial adviser the key measurement for choosing an income fund is not the total return of the product. It’s more to do with the commitment of the fund manager to the income, and also what happens to the dividend paid through the journey of that income product, particularly through good times and bad times in terms of market conditions. PRESENTER: Well lots of topics there. One I did want to come back, you were talking there about whether the attitude to risk of a client changes over time. From the research you’ve done it’s just certainly attitude to how much income they need changes over time in retirement. MIKE HAMMOND: The first part of this chart is showing you the demand for income in early retirement is quite significant. You’ve got situations where you could still be the bank of mum and dad, and therefore you’ve got your children still at home or at university. And as they fly the nest your demand on income reduces. And early on you could be looking to do all the things that you wanted to do in early retirement, travel the world and things of that nature. So clearly the demands on income in the early part of retirement are quite significant. And then as we go through later life income requirements could increase again as we go through the long-term care type scenario where people are moving into care and supporting in the older age. But clearly that’s a model, and as we know in life humans do not follow models, and as a result you’re in a situation where as a financial adviser you need to be very close to your clients to take them through that journey, because things could significantly change during that process, particularly health and therefore risk will need to change. The concept of “natural income” PRESENTER: And, Mike, a little earlier you mentioned the importance of natural income for retirees when choosing an income. Run us through, what do you mean by natural income? MIKE HAMMOND: Yes, I think if we look at the way that the IFA market has evolved over a period of time, you know, back when I first joined the industry natural income was very much the way that clients took income. And then as markets have evolved and things have come into the equation, like platforms, people have very much been driven down the unit encashment type route. And I think when you’re looking at a long-term income plan, then clearly there are a number of issues that you need to consider in terms of whether you should be looking at unit encashment or natural income. So the slides that you can see on the screen there are simply showing the difference between unit encashment and natural income in two different market conditions. We’re making an assumption here that the client’s investing £100,000 and they’ve got 100,000 shares. So they’ve paid £1 for their share in this situation a fund. And we’re using the average balance managed fund, so the mixed investment 40-85% sector, and we’re using our own Premier Multi-Asset Distribution Fund, primarily because that has a long-term history of delivering natural income. And what you can see is when you look at the average balance managed fund, if you’re taking a 5% withdrawal, then you would have withdrawn over that period from the 1st April 2009 £28,750 which would be subject to capital gains tax; however in order to generate that return you’ve had to encash just under 20% of your shares. And you’ve got 80% of your shares left, so the residual value of those shares as at the 31st December is £144,000. If you look at the Premier Multi-Asset Distribution Fund, you’d have had natural income, so that would be subject to higher rate tax. So there are some financial planning issues that you need to discuss with clients there. But you’re not encashing any shares and the residual value of that particular product would have been £161,000. Clearly in that environment you could argue that there’s not a lot of difference between whether you take natural income or unit encashment. And in that scenario you would argue either or. But the issue around that particular scenario is we’re talking about 1st April 2009. So we’re just about to enter into a bull market during that period. And you do really need capital growth, market growth, for unit encashment to work. So if you look at the right hand side we’re now into a different scenario. And the only difference in that scenario is that we’re now starting on 1st April 2000 when we’re going into a period of market weakness. In the boxes on the right hand side, you can see that we’ve withdrawn £73,750, subject to capital gains tax, but in order to generate that return you’ve had to encash 70% of your shares. So you’ve now only got 30% of your shares left, which means that the residual value of that is £49,000. Whereas on the natural income side you’ve had natural income, £73,000, you don’t encash any shares to generate that income, and the residual value is £108,000. And what you can see here is the blue line is the Multi-Asset Distribution Fund after the income’s been distributed. And what you can see from the blue line is that when you get to 2009, because you’ve got all of your shares intact, then that particular product then benefits from the market growth. And you can see the growth in the underlying fund. However, with the green line, which is the average balanced fund, that fund drops to around £40-50,000 worth of value. And once it drops down to that level, the issue that you have is that you need 10% market growth just to generate your £5,000 withdrawal. So you’re in a gradual decline in your asset value, because clearly the markets are not going to give you that on a regular basis. Certainty of income and market volatility PRESENTER: Well, Simon, you mentioned there that one of the key attractions of annuity is stability of income. But if you decide to go for something like a multi-asset fund, is your income as stable or are you having to take some risk there? SIMON EVAN-COOK: It will be less stable, yes. This is one of the factors that IFAs and their clients will have to consider at the point of retirement or during retirement, is the certainly with annuity, and that is very appealing to people, but the other side of that if you like is the fact that that income will be very low compared to what you could achieve from a multi-asset income fund, for example, which will pay out a higher income but does come with certain risks. Now I see those risks being effectively twofold. One is a permanent loss of income, and one is a temporary loss of income. Now I’ll deal with the temporary loss of income first of all. What that means to me is income is not going to be steady. It’s not going to be absolutely guaranteed to be a certain level each year, or guaranteed to grow each year. You may have some years where that drops. Now we’ve got a chart here of the multi-asset distribution fund, Premier’s Multi-Asset Distribution Fund. And the income payout, so the pence per share, the money invested in that fund have receiving into their bank accounts each year. And as you can see here there have been years when that’s fallen, and this is what I mean by temporary loss of income. So you take the financial crisis, obviously the biggest financial crisis that’s hit the world in 80 years, when the prices of equities were falling 40-50% depending on which market you look at. But actually the income we were paying here fell by 13%. Admittedly not an ideal result, we’d like income to be permanently rising, but what it does illustrate is that it doesn’t fall by as much as prices. But it does fall by a certain amount. But the key point is that it does keep rising over time, it keeps going up. So that loss of income is a temporary loss because of what’s happening in markets at a certain time. Now a permanent loss is potentially more worrying, and what investors have to assess then is to make sure they’re happy with what the fund manager’s doing. They’re not going to make mistakes which cause a permanent dent in their income, which would be more serious. Now this is a much less likely turn of events, it relies on a mistake from a multi-asset fund manager, so this is where selecting a multi-asset fund manager who understands income investment and you know that you can trust and has a long record of doing so becomes much more important. PRESENTER: And presumably unit encashment in a funny sort of way is another form of permanent loss of income. SIMON EVAN-COOK: Exactly, which is what you’re doing, you’re permanently eroding your income producing base if you like, what you can actually generate income from, which obviously you’re not doing from a natural income producing multi-asset fund. The role of multi-asset funds in a retirement portfolio PRESENTER: So given all that, what role do you see multi-asset funds being able to play in a retirement portfolio? SIMON EVAN-COOK: Well there’s several roles, and this is the joy of what we’re able to do. There are various different types of incomes, as Mike’s already talked about with the curve of the expected use of income in retirement. Now one of those things we can do for example with multi-asset income is to provide a growing income over time. We’ve already shown the chart which showed our dividends from our fund grown by 23% since 2003, which obviously what that does is that gives clients a level of protection against the effects of inflation. So, as I mentioned before, your income, if you’re on a fixed income, will erode over time as inflation rises, prices, and you can buy less. By using a fund that’s aiming to grow income we can either eradicate or certainly lessen the impacts of that. So that’s one thing we can potentially do. Otherwise we can also look to protect the capital as well, and in Mike’s erosion of income example we can see how we’ve actually ended up with more capital since 2000 compared to the unit encashment. So what that leaves you obviously is the ability at the end of retirement to have a lump sum of cash left for whatever you choose to do with it, give it to your kids, charity, you know, donate it to the cat, whatever. We can look after that capital as well, so there’s all sorts of different things we can look to do. PRESENTER: And how important is it from a multi-asset perspective that you’re offering a very broad range of different income types to compensate for this income volatility that you touched on? SIMON EVAN-COOK: It’s extremely important because this chart here illustrates exactly that. Just to briefly explain what this shows is the cost of the producing £10,000 of annual income if you’re using different asset classes here. So going from assets like cash on the left hand side, where you need a cool £2million just to be able to generate £10,000 of income, all the way down to high yield bond funds at the other end, you know, arguably one of the higher risk ways of doing it where you need a much lower amount of money to be able to generate that. Now all of these assets have their advantages. Clearly cash is a very safe asset, whereas high yield is high risk but with that higher yield. So to me this chart looks like a graphic equalizer if you like. At certain times each one of these assets will have benefits or costs, and the level of those benefits and costs will vary over time. So it’s key for us to be able to blend those assets together to reduce the risks of investing all of your money in any particular one of them at any time, but also to be able to create the benefits being a higher income by choosing assets where the opportunity set is stronger at any time. PRESENTER: And again how do you go about blending those assets together to produce a better overall income outcome? SIMON EVAN-COOK: Well valuation is key to what we do. It’s important to state that upfront. What we do is we look at the valuations and the income available on any particular asset at any time, and we can then set if you like that high level asset allocation. Now we have an example of what that looks like within the Premier Multi-Asset Distribution Fund, currently, and you can see there’s a mix between the blue section here, which is equities just at 44%, bonds at 29%, property at 20%, and some alternatives and some cash in there as well. Now the key for us in doing this is again we’re spreading those risks, but we’re able to change these levels in these pie charts depending on where the opportunities may be. So the green section of the pie chart at the current time is quite low, because we think bonds look quite expensive. Equities are a little bit higher, particularly in this fund because we’re looking to grow income and equities are a very good place to do that from. PRESENTER: And it’s interesting, a very small sliver in alternatives, is this because you don’t like the valuations at the moment or is this because actually there aren’t any magic bullets out there when it comes to diversifying portfolios? SIMON EVAN-COOK: Well I think there aren’t any magic bullets, full stop. I mean any particular asset - equities, bonds, property, alternatives - has risks at a certain time, and we are certainly not magic bullet investors. You’re never going to find this pie chart with just one colour on it at this level. But alternatives, that section of the pie chart has shrunk a lot recently. There were assets such as infrastructure in it more recently, but you’re right valuations have reached such a point where we’ve said actually the opportunity here does not match the risks involved, so we’ve cut back on that quite significantly. So it represents the opportunities available to us and how rich they are at any given time. Distinguishing between income and yield PRESENTER: Now we’re talking about income but everybody wants income these days. From an investment point of view are you worried that there are too many if you like yield tourists out there driving the price of income assets unsustainably high? SIMON EVAN-COOK: It’s something you need to be worried about. There’s different ways of reacting to that. One would be to chase higher yielding investments to try and get ahead of the pack. For us that’s not a particularly sensible way of operating, because you’re then just going further and further up the risk, taking higher risks with people’s money just to achieve a higher income, a higher yield level. That’s not what we do; we don’t want to take risks. To us the big risk with this fund is risk to investors’ income, and we’re not prepared to take that risk of damaging that income stream for investors. So there is that concern and we constantly have to be looking around for the best levels of income without taking silly risks on. PRESENTER: Well Simon, if you don’t go down the high yield path, do you end up, what do you do, do you end up buying growth stocks because they’re cheap? SIMON EVAN-COOK: We would never do that in the income fund because we have to achieve that level of income. What it means essentially is that you’re looking at stocks or shares or yielding, instead of yielding 4% like they were two years’ ago, they’re yielding maybe 2% now. Now they’re still paying out the same amount of income per share, so people who are invested in the fund are still getting the same amount of income. What’s changing is we’re not trying to boost the yield on our fund just to try and attract new investors to come in. So currently it’s about 4.4%, 4.5%. That yield will fall as the price of what we do rises. So what we’re saying is we’re not trying to artificially egg up that yield so that it’s kind of, it stays at 4.5% despite the fact that we’re having to increase risk to do that. PRESENTER: So it’s really important to make a distinction between yield and actual income, the pounds, shillings and pence you get in your pocket. SIMON EVAN-COOK: Absolutely right, and we have to make that distinction. 10, 15 years ago people would have been buying investments yielding 12, 13, 14%. Now if you found an investment yielding that today it would be extraordinarily risky and you probably shouldn’t be touching it with a bargepole. But it just shows the difference in environments. So you have to take into account what’s happening and at all times just make sure that you’re buying investments where the risk reward trade-off is suitable and there’s no significant risk to permanently losing your income producing capabilities. Product provider response to creating income products in a low yield world PRESENTER: And from a business point of view Mike Hammond, again everybody wants income, there must be a temptation to put higher and higher yields on products, how do you go about making sure that you run a responsible product set that’s got long-term value there? MIKE HAMMOND: I think it stems from what the fund managers deliver. And I think it’s more important that we communicate to the advisory market exactly what our expectations are for that particular product. I mean we run two portfolios within this space. One has a slightly lower starting yield which is multi-asset distribution, which Simon has already spoken, so yield is currently 4.4% net of basic rate tax, with the objective to grow that income as you’ve seen over a long period of time; multi-asset monthly income slightly higher starting yield, currently 5% net of basic rate tax, when clearly the objective and it is unlikely that we’re going to grow that income over the long period of time. So it comes back to communicating what you’re trying to achieve, and then for the adviser to measure you against that objective. And then if you can deliver that to the adviser, and the clients know what the objectives are, then the clients will be satisfied as well. PRESENTER: And, Simon, just bringing us back to this pie chart there, you talked about diversification but there’s only five different colours on that. If you look further through there how much diversification is there underlying all of these? SIMON EVAN-COOK: There’s an enormous amount, and this is absolutely key to what we do. We’re multimanagers and we’re very active investors. We’re not only active at that previous pie chart where we’re changing the size of each of those slices, we’re active underneath and we’re using active components within that. So property is a great example as we’ve got it up here; within that we’ve got some more steady open-ended funds which invest in direct commercial property. I would stress that we’re only investing in commercial property and it’s not residential, even if we could invest in residential property in the UK at the moment we wouldn’t because of the valuations. But also it shows the variety within there as well. So not only have we got funds that are investing in shopping centres and office blocks and factories, but we have the ability to access different types of property investments as well. There’s a good example here being MedicX, which is an investment trust which invests in primary healthcare facilities, GPs. So this is particularly appealing because they’re long contracts signed with GPs, and obviously we’re always going to need doctors. So we’re always going to have that demand for GPs. So GPs are going to be able to pay their rent every month, every year. So you’ve got a fairly stable stream of income there, and a fairly attractive stream of income as well. So it shows that even within that we can find little pockets of income which have their own appeals to them, which maybe you wouldn’t be able to get if you were just buying a passive block, or certainly wouldn’t be getting if you were buying an annuity. Judging investments by their future income potential PRESENTER: Well Mike, that’s what the multi-asset managers are focused on, but what should the adviser be concentrating on? MIKE HAMMOND: I think it’s a very interesting question because advisers, because of the way that this industry works, the research that they do is very much total return driven. Whereas I think when you’re looking for income solutions for clients, it has to be a very different way to assess income funds and look at income funds. So I think the advisers need to be looking at the income history of the solution that they’re selecting, and more importantly they need to see how robust that income stream has been through all different types of market conditions. And then finally I think in terms of volatility of income, so what has been the drawdown in the actual income received by clients, and is that drawdown an acceptable solution for the clients that they’re advising? And is the volatility and how much income they’re going to lose acceptable to them? PRESENTER: And coming back to a point that Mike touched on earlier, how do you go about as a fund manager identifying those funds that can deliver sustainable long term income? SIMON EVAN-COOK: Well there’s a lot of things to consider, and it’s not like just looking at a total return fund or a capital growth fund. One of the things that IFAs are going to have to get used to looking at, and it’s something we look at when we’re assessing income funds, is assessing the dividend policy of that particular fund. Are they dead set on delivering a certain level of distribution, or is it more of a total return, or are they actually more concerned with the capital here? It’s so important to get that right. Understand are they trying to just deliver a high income today, or are they trying to give you growth in the distribution per share, are they taking that lower income today with the belief that they can grow it more healthily over time? Now, in understanding this and I guess in understanding assessing us you really have to understand what the fund manager, his attitude towards risk, towards income and towards income itself is. So you have to understand does the fund manager actually care about income, or are they more concerned with getting themselves up the total return table? Is this actually a genuine income fund, or is it someone who’s just playing the income theme or playing an income, and they’re not really concerned about that. Because ultimately, and this is one of the sea-changes that has to happen in the industry, people have to understand that income is so important to end clients, but it is the key risk getting that income that people need to pay their bills or buy their holidays each year. And if you have a fund manager who isn’t concerned about that, who’s going to take a decision which damages income with the aim of getting his capital growth higher, then you really don’t necessarily want to be in that fund if income is the main thing you’re after. Annuity rates vs invested income solutions PRESENTER: Well let’s pull all this together now, Mike. The assumption we’ve had throughout this has been that you get a much better yield, potentially get a much better income off a multi-asset fund than you do off annuity rates. So let’s bring up this table, what can you get off annuity rates, let’s take it back to basics, how does that compare? MIKE HAMMOND: I mean these are some figures that we generated from the Annuity Bureau, and it’s looking at various different age groups, 65, 60, and also joint life survivor. And what you can see is if you want a level income with no guarantees attached to it at the age of 65, you can generate an income of £5,737 per annum. As you know you’ve given up all rights to your capital, and because there’s no guarantee that income will only last for your lifespan. So if you were unfortunate to die within the first 12 months or the first two or three years, clearly that’s a poor return on capital. All the time you start adding additional features to your annuity, so in the case of just move along, an RPI-linked income with no guarantee, you’re down at the levels of £3,486. So clearly you get a diminishing income when you start adding guarantees, and you start getting a diminishing income if you want your income to increase. And if you start adding joint life survivor type applications to that as well, then you have the same scenario. And if you compare that to say multi-asset distribution, we talked about multi-asset distribution, and that fund has got a current yield of 4.4% net of basic rate tax. So your income stream on that currently would be broadly speaking £4,400. So you can immediately see where that sits within the annuity space. And as Simon mentioned earlier, and as we saw earlier, the difference is that there will be some volatility in the income stream relative to an annuity which is guaranteed income. So that’s a discussion that needs to take place with the client. But the other key feature is that you’ve still got access to your capital if you need it at any time, and there is also the potential for some capital growth. And I think when you look at multi-asset distribution, which was launched back in October 1995, it was launched with a share price of 93.42p; the current dividend on that particular fund is 5.5011p per share. Now that equates to a yield of 5.88% for the investor that went in day one. PRESENTER: And talk us through what’s happened to the capital value of the income units? MIKE HAMMOND: If you look at the capital value of the income units, after the income has been paid, the price of that particular unit now is £1.31, just over £1.31. So that represents an increase of just over 40% in your actual asset value once the income has been paid. And in my opinion I think the demand for advice at retirement is going to significantly increase, if it’s not already increasing, and then because of the journey that the client’s going to go on in retirement, it’s very important that the advisor is reviewing and monitoring that whole plan. PRESENTER: Lots to think about. We do have to end it there. Mike Hammond, Simon Evan-Cook, thank you both very much. BOTH: Thank you.