Pete and podcast guest Matthew Yeates from 7Investment Management discuss the practicalities of setting up your own fund for retirement.
PM: We live in a world of more information than ever before, thanks to the internet, and more people engaged with their finances – not everybody, obviously, but many people are. How possible, how easy, you think it might be, for people to set something up like this themselves?
Given that we’ve got D to C platforms, low-cost investment approaches offered by many fund houses? Not only practically and technically with regard to setting up the buckets, but also how to deal with the emotional implications of having to deal with this sort of thing themselves?
MY: I think it would be difficult, given the steps of what we put together. Essentially, the model that guides how likely things are to be successful comes from an independent model that we build internally for dealing with some of the DB schemes we work with.
It’s been independently audited by actuaries, so there’s a lot of knowledge inside of that, and much of it is about coming up with unexpected return support failures, which is really important. Sitting on top of the best part of £10bn worth of assets internally, that’s a big question we put a lot of resource into answering through time.
Then, when it comes to how to split the buckets up, and know how to do that balancing act that I talked about, that makes use of some internal models that we’ve built based on the volatility of these things. That can be a really difficult task.
When people talk about bucketing, there’s this idea that they can get it, and see how people would feel more comfortable following that approach and how it makes sense.
The big issue, though, is running it, knowing how to do that balancing act and set the rules (and what they should be). It’s knowing that, the way we constructed it is so that two years of cash makes sense, rather than three, four or five.
There are so many questions that I think layer up at multiple steps; I think it becomes for us, something that we didn’t invent just as a new product to market, but it sits on five to 10 years of study and looking at expected returns.
I think with pension freedoms, the wave of money that the baby boomers have and so on, we felt that we should open this to people externally and give them access to the research we’ve done.
PM: It’s fascinating, and it’s such a hot topic right now. Where can people find out more about 7IM and the retirement income service?
MY: You can go online: www.7im.co.uk and follow the links from there; on the intermediary side if you’re an adviser yourself, or private if you’re a direct client. There will be links to either retirement income service specifically, or if you’re thinking about retiring. You’ll find documents you can read and download, and we bring it to life even more.
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