Guest comment: Helping people manage their retirement income

More and more people are now relying on defined contribution pensions to provide their income in retirement. According to the FCA retirement income survey in 2018/19, almost three times as many people choose to draw their income from their pension pot than buy an annuity. This decision then leaves them with the difficult task of managing their pot over the rest of their lifetime.

The same survey also found that 48 per cent of people did so without taking any regulated advice or guidance. This finding may be because people are put off from taking advice because of the cost, but it may also be that many people are not entirely comfortable with financial matters and figures in particular.

A recent report by PensionBee entitled “Drawdown Doldrums” (2020) also emphasised the need for simple investment and communication pathways to help savers manage this process.

It is therefore clear that there is a real need for tools that people can use themselves to help them to successfully manage their retirement income. This article looks at one possible approach using the ‘risk bowtie’ framework which provides a logical and visual tool to help them do this.

Using a risk bowtie to help manage your income

When a person first retires, they need to make decisions about the level of risk they are willing to take in the management of their pension pot, so as to provide a durable level of income. In this context ‘risk’ is the chance of not having enough money to provide an income for life.

Over time, unexpected events will inevitably occur (such as changes in investment markets or changes in personal circumstances) and so people need a way of revisiting the level of risk that was initially acceptable and adjusting it accordingly.

The risk bowtie is a risk management tool that brings together the various actions that can be used to manage this risk in a logical and visual manner.

In the risk bowtie framework, there are two steps:
• The first step involves deciding on the actions that need to be taken in order to set the level of risk that a person can accommodate (preventative actions).
• The second step involves revising these actions, as events unfold, to adjust the level of risk being taken (corrective actions).

Diagrammatically this might be summarised as:
Events –> Preventative actions –> Fund –> Corrective actions –> Income durability.

An example of how this approach might work in practise is included in the full article which can be accessed here:

In this example, we have shown the following four key actions, but others could easily be included:
• The level of income being drawn – drawing a lower level of income increases the chance that there will be enough money left for later.
• The investment strategy – investing in low risk assets will potentially reduce the volatility of the investments and reduce the chance of running out of money later.
• The level of cash held – investing in cash will provide protection from falls in investment markets at the point when the money is needed, although too much invested in cash will reduce the ability to offset the impact of inflation.
• The level of the contingency fund – holding a contingency fund, which can be invested in a range of low risk assets, can be used to top up income if the main fund falls, without needing to encash other assets at the wrong time.


With more and more people having to rely on defined contribution pensions in their retirement, there is an increasing need for new ways to help them make sensible choices about managing their retirement income.

I hope that the idea presented here could provide a way of helping people visualise the risks associated with income drawdown, and so help them to successfully manage their future income.

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