What causes sleepless nights?

A dripping tap, neighbours' dog barking, kids' GCSE exam results?

The TV news, weekend press, and radio commentary all start talk of the potential doom ahead and infect your clients with concern and worry about how secure their investments really are.

For many people, particularly those over 50, it could well be their retirement. How will they afford a decent standard of living, and, even if they have a good sized pension fund, what happens to it if markets suddenly crash and they lose 20 to 30% of the value, almost overnight?

To take a recent scenario, between Wednesday the 3rd of October and Friday 12th October – just seven working days – UK markets fell around 7%. That's just a snapshot, of course, but still an illustration of the volatility currently in the market.

Such fluctuations in the fund values can cause unnecessary stress, and concern in the client mind. More importantly, for those taking income these fluctuations may have a greater impact on the future value of their fund. We commonly know this as sequencing risk.

As we all know, many clients are not exposed to these dramatic fluctuations because they will have an appropriately diversified portfolio. However, the TV news, weekend press, and radio commentary all start talk of the potential doom ahead and infect your clients with concern and worry about how secure their investments really are.

On the whole, the impact of Pension Freedom has been positive, and has given income flexibility to many. On the downside, however, it's meant many clients taking on responsibility for investment performance, and in these turbulent economic times, that risk becomes all too real for many clients.

Our research has shown that many clients can have a cautious attitude when it comes to investing for retirement. Advised clients are liable to have a more sophisticated awareness of investment risk, but will still have the same concerns and be reading the same headlines.

So for many clients, the attraction of Pension Freedom is outweighed by the risk of lost fund value, especially in the years immediately before retirement.

We feel that the two levels of protection set alongside the long-term investment growth potential means that these funds should be considered by clients looking for a secure environment within which to grow their pension fund both before, and during, retirement.

There are ways of mitigating this risk, including appropriate investment choice in terms of risk rating and capacity for loss and diversifying investment choice, as well as regular reviews and cashflow planning.

It's possible that an individuals' pension fund could be worth more than their house. Property is insured against the impact of cataclysmic event – fire, flood – but how can clients protect their pension fund in the same way?

Fortunately, many advisers will be recommending an appropriate portfolio to their client, to provide some protection against market volatility and balance in their returns. I am pleased that we have taken one further step to provide an option for the adviser looking to balance and protect the client from the possibility of such strong market movements in such short-term periods. Through a simple process of a 'rolling average' we are able to provide you and your client with a smoothed investment strategy.

The LV= Flexible Guarantee Funds have two levels of investment protection to help safeguard clients against market turmoil.

Smoothing in action

 Smoothing in action

The graph illustrates how the averaging effect of smoothing can work in practice, showing both the underlying and smoothed prices over a period of time. The prices and timeframes are used purely to display the effect of smoothing. They are not based on real past performance nor are they a guide to future performance.

Once clients have invested for 26 weeks, investment value is averaged over a rolling 26-week period, so the impact of any sudden market changes is quite literally, smoothed out. You can see how this works on the chart, where the underlying price reflects sudden market movement whilst the impact of averaging means a much steadier investment journey.

The second level of investment protection is an optional spot guarantee. The guarantee ensures that in 8-10 years' time, depending on the fund chosen, a pension fund won't be worth any less than it is today, less any charges or income taken. If fund values have gone up, the client will get the higher value. In many cases, the opportunity to protect the value of a pension fund is seen as a worthwhile cost for clients approaching retirement.

The guarantee is unique as it can be switched on, off and renewed at any time, giving advisers and clients extra flexibility when it comes to retirement income planning.

Our experience shows advisers recommending the fund in a number of circumstances: before retirement, with the added benefit of a future spot guarantee, perhaps to align with a future withdrawal date; or when an income stream is being withdrawn to protect against the sequencing risk that is ever present in our markets and perhaps magnified in uncertain times. In turn we can see that our solution is also used as a core fund strategy, perhaps providing a shock absorber to market movements, as well as a one fund solution to those with a simpler approach and situation.

There's a choice of three funds, all of which have been risk-rated by three leading fund analysts, including Defaqto, Distribution Technology and Synaptic Software, giving clients the reassurance that the chosen funds are appropriate for their risk rating.

The funds are managed, to our mandate, by Columbia Threadneedle, one of the leading fund managers in the world, with over $450 billion AUM (as at 30th June 2018), providing more reassurance for clients that their pension investments are in safe hands.

We feel that the two levels of protection set alongside the long-term investment growth potential means that these funds should be considered by clients looking for a secure environment within which to grow their pension fund both before, and during, retirement.

As part of our ongoing commitment to providing customer value, we've reduced the wrapper charge on our pension down to just 0.15% for clients investing solely in our Flexible Guarantee Funds.

Have a closer look at the Flexible Guarantee funds to understand which types of client may be suited to this solution, and how you can include the funds as part of your retirement income planning advice process.

For more information, speak to your usual LV= sales contact, or call our dedicated Retirement Desk on 08000 850250