The original lifestyling options came under criticism because they shifted a policyholders funds to bonds automatically, no matter what the bond market was like.
With the introduction of the ARF, companies came up the the ARF lifestyle option where 75% of it would stay in a balance fund and the other 25% would go to cash to project the tax free lump sum. I always thought this was nonsense as the lump sum is a percentage of the entire fund, so if the Balanced element fell by 30%, the lump sum payable would decrease too.
Personally, I believe that clients should have an investment strategy they are comfortable with and stick with it all the way through and not to bother with a lifestyling strategy. But this is where emotions come into play. The tax free lump sum is sacrosanct and people want to protect it as much as they can. People are perfectly willing to forgo potential growth to ensure that the lump sum doesn't fall in value. They are happy to transfer to cash, even if it means they buy back into the market at a higher price when they start investing again in their ARF.
On a point Liam made about having to sell out of the pension and buy again in the ARF, it's not a cost to the client anymore. In the past, there was a 5% bid/offer spread where you sold less 5% of the value of the unit. That's gone in almost all cases. If you matured a pension, you will buy the same day you sell and at the same price.
And while I agree with Sarenco about Euro cost averaging, again, emotions have to be managed. If someone has a large fund, they may be willing to forgo some growth in order to feel more secure. While it is my job as an advisor to explain to someone that they are better to get their money working for them immediately, there's no point in having a client who is staying awake at night with worry.
I mentioned before, I use a piece of software called
Timelineapp , which shows how successful a withdrawal strategy would have been going back to 1900. I can pick the asset allocation, number of years and withdrawal rate. Over a lenghty period of time (which an ARF is), most situations are successful. A key aspect to making your money last is to adjust your withdrawal with the market. As most ARF holders make withdrawals as a % of the fund, this is automatically done.
Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)