David Jane
Premier Miton Macro Thematic Multi Asset Team
For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
Destination retirement?
The topic that most comes up in client conversations right now is retirement income. We think there are two very good reasons for this. One is the rapidly growing size of the market, the other is lack of products being offered by the asset management industry that fully address this market.
In the thematic side of our investment process, demographics plays a big role. This is largely because demographic trends are known with a great deal of certainty for many years to come. When considering the UK, you can see from the chart there is a rapidly growing cohort of individuals entering the late career/retirement phase of life, while the category of mid-career savers is starting to shrink.
Indeed, the picture is even starker when you consider that the 50 plus cohort is set to grow 23% in the next 30 years. This is the cohort that is either in retirement or needs to be planning for retirement.
Source: United Nations Population Division, Estimated population prospects 2022
The elephant in the room
The savings and investment industry has typically focused on the capital accumulation phase, for obvious structural reasons. Specifically, until recently, clients were ultimately compelled to buy an annuity. So post-retirement income was not a focus of the industry, the life insurance companies were going to take over at some point. This is no longer the case.
The initial impact of pension freedoms was to increase the potential pool of pre-retirement clients who could benefit from better control over their pension savings. These clients are now moving into near-retirement and post-retirement and their needs are greatly changed.
The capital accumulation focus led to products designed to meet various levels of risk and expected capital growth. This was obviously appropriate with the majority of clients in accumulation phase and especially with growth being a favoured investment style. Most product offerings were designed with this in mind.
This is rapidly changing, the fastest growing area of the industry is post retirement now, yet the industry remains obsessed with risk targeting, ignoring the elephant in the room. Clients are going to need income, the volatility of their capital is much less an issue than their need to draw a consistent income level from their portfolio.
Using products designed for capital accumulation and redeeming units is not only a perverse way to generate an income, but also potentially harmful. Unit encashment strategies can be very harmful if there is a material market decline in the early years after retirement: the client’s funds are permanently eroded through selling assets at low prices.
We think this is where natural income comes into play. A properly constructed and managed portfolio designed to generate a stable and growing stream of income, much closer matches a near-retirement or post-retirement client’s needs.
Premier Miton Cautious Monthly Income consistency
Source: Premier Miton, from October 2016 to December 2022, class B income shares. This Fund became an income paying fund on 30.11.2015. Income history for full financial years only. The historic yield reflects distributions declared over the past twelve months as a percentage of the fund price. It does not include any preliminary charge and investors may be subject to tax on their distributions. The yield is not guaranteed and will fluctuate. The level of income paid by the fund may fluctuate and is not guaranteed.
Annual performance to 30 June
The performance information presented on this page relates to the past. Past performance is not a reliable indicator of future returns.
Performance source: FE Analytics. Based on UK sterling, class B accumulation units, on a total return basis. Performance is shown net of fees with income reinvested.
Other unit classes are available which may have higher or lower charges which will impact the returns of the fund. Fund factsheets are published on our website for each available unit class.
The fund is classified in the IA Mixed Investment 20-60% Shares sector, which we believe is a meaningful comparator to help investors assess the performance of the fund.
Design thinking
We think it is down to the investment management industry to better design products to meet this rapidly growing client need. At Premier Miton we have long been an advocate for natural income and we have generated a long and stable income track record with the Premier Miton Cautious Monthly Income fund.
