Sweeping changes to the UK’s pension system have heralded a new era of flexibility, enabling individuals to use their pension fund as a savings vehicle beyond the point of retirement. Furthermore, increased longevity means many of these retirees will require a stable income for an extended period.
At the same time, persistently low income yields on traditional assets such as cash and government bonds have made it harder for pension schemes to meet their cash flow and funding requirements without taking on increased investment risk. With increasing numbers of defined-benefit schemes closing to new entrants and subsequently new accruals, these issues have only been exacerbated.
By investing in suitable income products, schemes may be able to make their investments work harder to deliver on their dual objective of generating income to meet cash requirements and growing capital over time.
By focusing on companies and governments with a disciplined approach to capital management, we believe income strategies can provide a consistent income stream, even in volatile markets. In addition, we believe the compounding benefits of reinvested income can also provide very strong risk-adjusted returns over the long term. This applies not only to the income from equity dividends but also to the income that can be derived from bonds and alternative investments within a multi-asset portfolio.