First though, the good news. The introduction of potentially open ended drawdown solutions from Prudential and Just Retirement require more robust questioning of clients regarding when they require funds, e.g. a client paying for holidays for the next five years does not need to all funds at outset.Step 1. We must ensure our fact-find doesn’t just gather requirements for funds but also asks the ‘when’ question. Step 2. The ‘how much’ question is obvious but one many clients give little thought to. Step 3. We must explain the benefits and principles of drawdown and how it will meet their requirements. Take a typical case. A couple aged 63 and 64 are looking to raise funds for 25,000 for a conservatory and for an emergency fund as they have no savings. This amount also includes 3,000 for a holiday. They require these funds now. They also require 10,000 in about four years’ time to replace their car. Also, they would like about 3,000 each year to fund holidays, and want this for at least a further five years. The scenario compares releasing all funds at the outset with taking them via drawdown as required. The interest rate is 5.99 annualised.The saving of almost 13,000 in interest is considerable. The cautionary note is that the rate of interest for subsequent drawdowns under these long-term options is not known at outset and the example assumes it stays constant. It is important the suitability report draws attention to this.
Developments in the equity release market in 2005 offer a fresh perspective for advisers. The biggest development has been the introduction of considerably more flexible drawdown products offering like-for-like interest rates for drawdown and single sums. It is wise to ensure clients get the full picture when considering these plans and to sound a cautionary note.