A growing proportion of advice firms now have more clients approaching or entering drawdown than at any point since pension freedoms began. Data from the Financial Conduct Authority (FCA) showed drawdown sales rose 25.5% in 2024/25, from 279,000 to 350,000 policies, and pension plans accessed for the first time climbed to 961,000.
Now we’re in the age of drawdown, we need to change how we think about investment when we approach retirement; a portfolio designed for accumulation is not automatically the right solution once a client is five years from retirement, or already drawing an income.
Thanks to the introduction of the pension freedoms and the effective disappearance of defined benefit (DB) pensions from the private sector, people are more reliant than ever on defined contribution (DC) pots. This means the typical retirement saver – who is living longer than ever – now bears investment and longevity risk directly rather than sharing it with an employer. When it comes to preparing the right investment proposition for decumulation, the margin for error has narrowed considerably.
Building wealth
Accumulation is mainly about building wealth over time, and the final years before retirement shift the focus toward reaching a target without taking unnecessary timing risk. In comparison, decumulation has other demands: sustaining withdrawals, managing volatility, preserving flexibility and reducing the risk that poor returns arrive at the wrong time. A client 20 years from retirement can usually ride out volatility with time and discipline; a client two or three years from needing the money has much less room for error; and a client taking regular withdrawals has even less room again.
A well-built investment portfolio remains valuable by providing asset allocation, diversification, governance, rebalancing and a scalable process. However, it is still a mark-to-market portfolio, and it depends largely on rising markets to produce positive returns over time. What it could benefit from is a more targeted approach: one that works towards a specific retirement target and narrows the range of possible outcomes for a client already drawing income. So, how can that range be narrowed? A structured product allocation, sitting alongside the portfolio and used correctly, could be the answer.
See also: Royal London, Aviva and Quilter top Defaqto pension rankings
Such an allocation can be designed to offer some protection in the years immediately before and after retirement. Before retirement, the aim is to increase the likelihood of achieving the client’s retirement target, by broadening the range of market conditions in which the wider portfolio can produce positive returns. In drawdown, the aim is to reduce dependency on markets playing ball, and to offer some protection if falls arrive at the wrong time.
Clients are rarely familiar with the mechanics of portfolio construction, but they do understand having different parts of the portfolio doing different jobs. One part funds income now; one part is there to protect that income over the next few years; and one stays invested for long-term growth. That’s a clearer and more reassuring conversation than asking a single portfolio to do everything at once, and it gives advisers a more evidenced way to demonstrate client outcomes under consumer duty.
See also: Compliance cliff ahead: Facing the reality of Pensions Dashboard deadlines
Firms taking this seriously build proper governance around structured products: agreed product criteria, approved counterparties, diversification limits, suitability frameworks, centralised review and client communication standards, each with a clear role inside the retirement proposition. The structured allocation exists because it has a specific job within a client’s retirement framework.
With so many people taking drawdown, advice firms should consider whether it’s time to change how they approach retirement, and how they could minimise risk and the chance of losses at a key time in their clients’ lives. That might mean looking at products that feel unfamiliar today but serve a clear purpose in their portfolio.
Joe Simpson is director of investment management at Walker Crips
