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DEBBIE PHILLPOTTS DipPFS CFP, Senior Financial Planning Consultant, Arbuthnot Latham & Co Ltd and SIMON BRUCE, Partner, Farrer & Co LLP
'As has been said more than once, the only thing one can be sure about Duxbury is that the figure is likely to be too high or too low. It remains however a useful guide'. (Wall LJ (Fielden v Cunliffe  1 FLR 745)).
2006 may be recent history chronologically but it seems an aeon ago in economic history. If Duxbury was no more than a useful guide then, where does it stand today? Does it still have any credibility or, if there ever were any certainties, can we still rely on them today? Perhaps it is time for a re-think. I am a financial adviser, and my work often revolves around using economic forecasting to fulfil absolute requirements. I am therefore particularly interested in the theory behind the Duxbury tables and, specifically, the relationship between the theoretical calculation of a capitalised sum for income and the practical issues in reversing that calculation, ie realising the target income stream from the capitalised sum.
Securing income from capital is a central theme in financial planning at every stage of life (and death) - whether it's using a family trust to pay school fees, providing family income from life insurance, planning for a comfortable income in retirement - or using a capital sum from a divorce settlement to provide income for life. Not surprisingly, it is a highly regulated area of advice, the regulator's primary concern being to ensure that realistic growth assumptions are used and that the proposed investment model meets the client's own risk tolerance.
Unfortunately, this is not an area that lends itself well to the absolutes that the regulator would like us to identify. Clients who might confidently have described themselves as high risk investors when we had a bull market of Celtic tigers and Asian dragons, may now think twice just making a deposit with their bank. It is my responsibility to try to define the client's core 'investment risk tolerance' and to explore the assumptions that that they are prepared to make. To take an example, I might have a client in their mid forties with concerns about their income in retirement. They might want advice on securing a post tax annual income of, say, £100,000 in today's terms from their sixtieth birthday. Before I work on their strategy, I shall need to discuss and agree certain assumptions with them.
To read the rest of this article, see February  Family Law journal.
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This work provides commentary, checklists, procedural guides and precedents on the subject in a...