Critical yield for Drawdown

Hi everyone :).

If you're moving funds into Drawdown for the first time for the purpose of taking TFC and not take income (the client doesn't want to trigger the MPAA) do you still need to do a critical yield calculation?

Also would it be worth discounting an annuity/UFPLS in the suitability report?




  • edited January 28

    I don't think you need to do a critical yield calculation in any scenario?

    We tend to reference safe withdrawal rate data (i.e. 4% is deemed sustainable, but actually maybe not) along with cashflow forecasting and monte carlo sims.

    I would reference annuities but as income is not required, there'd be no quotes or anything (for me).

    All of this analysis would start with: "Although you are not currently looking to draw an income from your pension savings..."

    EDIT: And you should cover off why TFC is required but no income. If the lump sum is not to fund retirement in some way, a warning should be added.

  • Thankyou, very helpful!

  • Agree with Aron, you don't need a critical yield for drawdown, but it is still best practice if you think that the client might buy an annuity in the future. You should be explaining why unsecured income routes are more suitable for the client's needs than an annuity.

    Also, when accessing for PCLS only, you need to be very clear about the reasons for using pension funds to access cash and be able to explain the impact on their future position. And include the information stated at COBS 9.4.10.

    I take the approach that the guidance in COBS for DB transfers at COBS 19.1.6(4) could very easily be applied to all transitions into FAD. You can build a good process by taking some of these points into normal FAD advice.

    Benjamin Fabi FPFS
    Chartered Financial Planner 
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