Run time: 12mins 49secs
What are the new pension changes and what do they mean for investors?
Well, the big change that’s happened with pensions has been that the requirement to buy an annuity has been removed. So, it used to be the case that when you retired, when you took your pension, you had to buy an annuity, but that’s no longer the case. What this means is there’s greatly increased flexibility for people taking their pension nowadays, and so income and deciding what type of income and how you get your income has become considerably more important or in some ways a more difficult decision than it used to be.
Another thing that’s interesting, in relation to this, is that people are living a lot longer, and so they have to plan for a retirement that’s going to last for potentially decades rather than just a few years, as maybe the case was fifty, forty years ago when life expectancy was so much lower.
So planning for retirement now is a lot more complicated. Within that retirement you’ve got potentially a different shape of retirement. At the start of retirement, you might be more active in your lifestyle, which has its own expenses, but less spent on healthcare, where as you move through retirement then that will be shift to being much less active, so less money spent on that, but maybe more money spent on higher healthcare.
So, the upshot is you’ve got increased flexibility, but you’ve got some very difficult decisions in terms of how you access income, how you gain income and what you do with that income as well.
How can Premier’s multi-asset income funds help investors approaching retirement?
Now many investors will be considering alternatives to traditional annuities. There’s no longer that requirement, remember, to have buy an annuity, and while some investors or some retirees will still want to buy an annuity, not everyone will do. One alternative to that is a multi-asset income fund, which is what we run, and that gives you a different solution, if you like, to your retirement income needs.
Now, we run two such funds, the Premier Multi-Asset Distribution Fund and the Premier Multi-Asset Monthly Income Fund, and they focus really on generating regular and sustainable levels of income by investing, crucially, in a portfolio of different types of investments, so equities, bonds, commercial property, for example.
Now, the Multi-Asset Distribution Fund, that aims to pay its income on a quarterly basis and crucially to grow that income over time. So, if you retire today, in ten years’ time, if we’ve succeeded in growing that income, then you’ll still have the same standard of living that you will have done at the time you retire, because we would hopefully have protected you against the effects of inflation over that time.
Now, the Multi-Asset Monthly Income Fund aims to pay a higher initial income today, but it doesn’t necessarily have the same emphasis on growing that income over time, and as the name suggests that income is paid on a monthly basis.
Now, both of these funds, as well as paying an income, also offer the potential for a level of capital growth. Again, if we get what we’re doing right, then there is that ability that the price you’re able to sell the fund for might be higher than the point you invested too. Now, this again can come in useful for inheritance tax planning, for example, but also if your income needs change over time. If you’ve still got a decent sized nest egg left later on in retirement, you can start to eat into the capital of that.
Now, another advantage of these funds is the flexibility this gives you, you’re able to access your capital at any time. They’re not locked up, the funds are daily traded, so at any point you wanted your capital back you can do that. But it’s also very very important to stress that these are different solutions to an annuity. The big selling point and what people like about annuities is that the income is guaranteed and does not fluctuate. That is not the case with these funds here, the income is not guaranteed and it will fluctuate over time, and there will be some investors who prefer that guaranteed level of income. But the downside to that guarantee, as with anything in life, is because you’re taking less risk, effectively, you’re getting less income for that.
So it really is that trade-off between the safety and the absolute one hundred percent knowledge that your income is safe with an annuity versus the higher income that potentially a fund, such as the multi-asset funds I’ve just talked about, can provide.
What is a multi-asset fund and how can it help to produce an income?
Well, as the name suggests, Multi-Asset Distribution and Multi-Asset Monthly income are multi-asset funds. This means that they can invest in a blend of different assets to form a single portfolio. So those assets might include shares, bonds, commercial property, but also some alternative less well-known investments, such as maybe infrastructure, for example, or maybe some commodities.
Now, this gives you exposure to different funds, different specialist managers, different asset classes, all within a single fund, and really the point of doing this is diversification, or to put it another way not putting all your eggs into one basket, which is particularly important where your retirement income is concerned. This means that that income is being generated by lots of very different diverse types of investments.
So, if you get a year like 2014, for example, when the prices of UK equities didn’t do particularly well, but the prices of UK commercial properties did, then having exposure to both of those different asset classes at the same time helps to balance one against the other.
Now as well as being multi-asset we are multi-manager. This means that we use different active managers, specialist managers to look after the shares or to look after the commercial properties or the bonds, whatever the individual underlying investments may be. This makes it slightly different from some multi-asset fund managers who pick the individual shares or bonds themselves.
Our view is that there’s simply no way that we could be the best at picking an Asian equity one day versus a European equity the next day versus a commercial property the day after that or a corporate bond the day after that. It’s simply very difficult to have all those skills within one team. So, our solution instead is that we go out and find the very best fund managers to do that for that, and that’s what we are really very good at, and spend a lot of time doing, is making sure we have those best managers in place. So, you’re diversified not only by asset class, you’re diversified by individual underlying managers looking after your retirement income for you.
Now we’ve been running funds like this for two decades at Premier. David Hambidge, who’s my lead manager and leader of the multi-asset team, has been with Premier since 1987, and we conduct as a team hundreds of meetings and research into the funds, into the asset class on your behalf, all with that simple aim of making sure that we have the income that you desire ready for you. That income that grows over time or that’s high today, that’s what’s we really spend our time researching and making sure we keep on track for you.
Now, we’ve got a very long-term track record of delivering that for investors, both in Multi-Asset Distribution and Multi-Asset Monthly Income, and we’ve managed to generate the right level of income for investors over a decent amount of time now.
What is ‘natural’ income and why is it important?
The way our funds work in respect of income is that they pay out income naturally from their underlying funds and their investments in the forms of dividends per share. This means that you can effectively take your income without having to sell or cash in any of the shares that you own. This is important, because it means that you can receive that income without selling the shares, and so you’re not eroding your capital on that basis. If, conversely, you went down the route of planning your retirement income by taking or cashing in a certain amount of shares every month to give you that income, by taking capital effectively, there is always the risk that at some point in the future you may have no shares left to pay out that income.
Another good reason why we think natural income is important is because it also leaves that capital, then there’s the potential for capital growth too. If we do our jobs well, and we can get the capital or the price of the investments we own to grow as well, then you’re left with a decent lump sum at the end, which is obviously very good for inheritance tax or inheritance planning.
What are the risks of investing?
Well, all types of investments have risks. I mean you take the example of cash, which people consider to be probably the safest asset, even that has a risk of being eroded away by inflation being higher than the level of interest you’re getting on it.
So, looking at the funds specifically, one risk might be that if you decided to take an income from these funds by encashing units, so taking the capital rather than a natural income, there is the risk that those shares will run out after a certain amount of time, depending on what’s happened in markets. There’s also a risk within the multi-asset funds that the income will fluctuate.
Now, the income will fluctuate, that’s a fact of investing in these funds. You know, if we do our job well, then it’ll fluctuate more upwards certainly than downwards, but the important thing to say is there is no guarantee in the way that you’d have a guarantee with an annuity. And this is why active management is so important and picking the right active manager to make the decisions for you. Experienced multi-asset managers, our job day-to-day is to run the investments and to keep the income generation on track for you and, hopefully, avoid the types of risks that might damage your future potential income.
So there’s an awful lot to consider when you’re picking an income vehicle and a multi-asset fund suitable within that. So you have to consider factors such as your attitude to risk, your own long-term objectives, how much income you need, how long that money needs to last, what the different sources of income you may already have or that you wish to take, and your tax situation as well. So these factors are complicated, and so it really is very important that you talk to a financial adviser, who’ll be able to advise you on all of these factors and then recommend a suitable route or a suitable fund for you to go down in respect of your income.
Why do your believe your funds offer an attractive retirement solution?
I think our funds stack up very well as either a standalone income solution, or it may be potentially as a complement to an annuity or another source of income you may already have in place. Now, our funds are very well diversified, and I think this is one of the big advantages. They’re multi-asset, as we’ve talked about earlier, so they are spread across different asset classes, and they spread the risk to the income stream. Whereas if you just had your income focussed on just being generated by a property or just by shares or by bonds, if anything hits that one particular asset, then that can hurt your income stream to a large extent. But by spreading your risk you are spreading those risks.
Now, I think, one of the real advantages and one of the key strengths we’ve had as a multi-asset team is that with our income funds we are genuinely focussed on generating an income for these funds. We’re not trying to be a capital growth fund only or an absolute return fund. Because there’s the trouble that there are some funds out there that, although they have the name income in their title, they’re trying to be all things to all people, and the trouble with doing that is you can end up being nothing to anyone. So we have focussed absolutely on generating an income, because we realise how important that is for our investors in these funds.
Another important thing to consider is that if you’re just taking the natural income, so the dividends that these shares pay out and not encashing the shares as you go through your retirement, that can leave you with a nice lump sum to pass on to your loved ones as an inheritance.
Now really to sum it all up why Premier, why Premier multi-asset, because we’ve been running multi-asset funds for two decades, we have a great deal of experience and a track record to show that we have been very good at generating the outcomes for investors thereafter. Now, in the case of the income funds, clearly that’s to generate the type of income you need to go through your retirement, and I would stress again that our focus is on delivering this so that you can get that comfortable retirement that you deserve.
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A free, English language copy of the Fund’s full prospectus, Key Investor Information Document and Supplementary Information Document are available on the Premier website or by calling us on 01483 306090. For your protection, calls may be monitored and recorded for training and quality assurance purposes. A free, English language copy of the Fund’s full prospectus, Key Investor Information Document and Supplementary Information Document are available on the Premier website or by calling us on 01483 306090. For your protection, calls may be monitored and recorded for training and quality assurance purposes.
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