Post on 30-Dec-2015
description
Maximising the Benefits and Minimising the Risk of Drawdown
Sustainable Income Needs:
Personal MIR
Retirement income planning in 2015 A NEW ERA
Accelerated Income needs?
Tax Free Cash
Additional cash needs?
Retirees
3 Key Choices
Learning Outcomes
Describe the purpose of Drawdown reviews, HMRC and FCA requirements
Calculate relevant and personalised critical yields
Evaluate when conversion to an annuity might be considered
Understand what an appropriate process for Drawdown reviews might look like
Handset Question 1
What does your Drawdown Review process currently look like for clients under 75?
1.Annual review by post, email or telephone.
2.Three yearly review by post, email or telephone.
3.Annual review face to face.
4.Three yearly review face to face.
The purpose of Drawdown Reviews
AdviserRetirees
• HMRC Requirement• GAD Review to ensure fund
doesn’t deplete too quickly• Ongoing review post 2015?
FCA Rules for Drawdown Reviews
COBS 9.3.3
Outcomes =
personal
recommendations
Regulatory updates 55 and 67
Best Practice for Drawdown Reviews – COBS 9.3.3
“When a firm is making a personal recommendation to a retail client about income withdrawals or purchase of short-term annuities, it should consider all the relevant circumstances including:
(1)the client's investment objectives, need for tax-free cash and state of health;
(2) current and future income requirements, existing pension assets and the relative importance of the plan, given the client's financial circumstances;
(3) the client's attitude to risk, ensuring that any discrepancy is clearly explained between his attitude to an income withdrawal or purchase of a short-term annuity and other investments.
COBS 9.3.3
An appropriate process – meeting the needs of COBS 9.3.3
Frequent reviewsCharge an
explicit facilitated fee
Conduct full fact find
Check Drawdown ATR
Capacity for lossState of health –
self and dependants
Change in circumstances
Relevant Critical Yields
Issue relevant annuity quotes
Discuss options with client
Make recommendation
Is anything missing from your Drawdown Review Process?
“A process which doesn’t include both health questions and the practical use of the answers to those questions is likely to result in more clients remaining in drawdown, possibly to their detriment”
Outcomes of the typical Drawdown Review
Are sufficient reviews being
undertaken and is health
being considered?
Two key questions
What are the outcomes of the typical Drawdown
review?
Based on the requirements of COBS 9.3.3. is anything missing
from your Drawdown review process?
Capped Drawdown Review: Outcomes
• Leave everything untouched• Stay in drawdown with adjusted income levels• Move whole fund to annuity/enhanced/impaired annuity• Move part of fund to annuity/enhanced/impaired annuity• Move to Flexible Drawdown
Outcomes of the typical Drawdown Review
Income requirements
Construct investment
portfolio
Assess risk profile
Critical Yield
Enhanced annuity rate?
Underwrite
Income Shape
Personal Critical Yield
Three Steps to a Personalised Critical Yield
Impact on Critical Yield calculation
Quoted CY from Capped DD quotation
6.51%
Step 3Income 12.67%
Step 2Shape 6.45%
Step 1Underwrite 7.14%
0.00% 5.00% 10.00%
Source: Avelo Exchange & Just Retirement Limited 16.04.14. Based on an individual aged 65, with a £100k fund, monthly in arrears, no escalation, no value protection, 50% spouses pension, 5 year guarantee period, based on RH2 7RT postcode. An annual management charge of 2% has been assumed when calculating critical yields.
15.00%
Personalised Critical Yield
Handset Question 2
Would you like a copy of the Critical Yield Calculator?
1.Yes
2.No
When might a conversion to annuity be considered?
Health
LTC
Death of spouse
Assets depleted
Mortality drag
Now fully retired
Concerns re performance
required
ATR changed
Gtd income now
important
Legislation, GAD, etc
Is phased conversion to annuity something to be considered?
Drawdown becomes progressively less suitable as we age;
Annual mortality subsidy based on age of buying annuity
Add
ition
al a
sset
gro
wth
req
uire
d to
cou
nter
act
the
drag
effe
ct a
gain
st in
crea
sing
age
Exit strategies are important because of mortality drag
When should annuitisation start?
Annual mortality subsidy based on age of buying annuity
0%1%2%3%4%5%6%7%8%9%
10%
60 65 70 75 80 85 90
Financial sense of annuitising
increases
Add
ition
al a
sset
gro
wth
req
uire
d to
cou
nter
act
the
drag
effe
ct a
gain
st in
crea
sing
age
Talk to us!
Annuities: Still relevant and valuable
Better Client Outcome
How to Reduce
Ask the right Questions
A useful Benchmark
Regulatory Risk
Support
adviser
Conclusions
Handset Question 3
Following this presentation, to what extent will you now consider changes to your review process?
1.May consider making significant changes.
2.May consider a few changes.
3.Am unlikely to make any changes.
Thank You
Learning Outcomes
Describe the purpose of Drawdown reviews, HMRC and FCA requirements
Calculate relevant and personalised critical yields
Evaluate when conversion to an annuity might be considered
Understand what an appropriate process for Drawdown reviews might look like
Important Information
It is our intention that the information contained within this presentation is accurate. We have taken all reasonable steps to ensure that it is up-to-date and where relevant, reflects the current views of our experts. However, we do not accept any liability for errors or omissions in the information supplied and if you require clarification on anything, our recommendation is that you contact us at the address below for verification, or call 0845 302 2287.Our registered address:Just Retirement LimitedVale House, Roebuck Close, Bancroft Road, Reigate, Surrey RH2 7RU.
Regulatory information: Just Retirement Limited (Registered in England Number 05017193). Registered Office: Vale House, Roebuck Close, Bancroft Road, Reigate Surrey, RH2 7RU. Just Retirement Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.