Innovation and retirement planning for cautious, middle ...Innovation and retirement planning for...

Innovation and retirement planning for cautious, middle and mass market clients

Kevan RamanauckisRetirement Income Specialist

Information for adviser use only

Retirement Advantage – Information for adviser use only

Learning objectives for today

2

• Identify the challenges facing cautious

retiring clients and their advisers

• Demonstrate how a cautious retiring

client can remain invested longer

while mitigating risks

• Describe the type of clients using new

innovation to secure their own

retirement in uncertain times


Challenges: converting clients assets into income

PensionSavings i.e.

ISA

Investments i.e. Unit trusts

Property

Income or Legacy

4

£What about your Cautious, Middle and

Mass market clients?


Investment concerns: for the cautious investor

4

Low Interest Rates Asset Price Bubble Falling Pound Rising Inflation

Political UncertaintyInvestment Volatility

Retirement Advantage – Information is for adviser use only

The “Big 5” issues in retirement

5

Having enough money to dothe things I want to do

The cost of living Health issues

Source: YouGov research for Retirement Advantage, Sentiment Index August 2015.

Losing a partner or spouse Leaving a legacy


Certainty and Flexibility: in uncertain and volatile times

Flexibility

Growth potential

Access to cash

Flexible when my circumstances change

Flexible when markets change

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Certainty

Capital security

Income certainty

Continued income for dependents

Legacy for loved ones


Cautious clients: retirement risks they will face

7

What risks do your clients need to absorb, avoid or insure?

Known risks facing retirement Unknown risks facing retirement

Longevity risk (this is not just a risk, but a

risk multiplier for all the other 9 risks)Divorce

Mortality risk Market crash

Market risk Swindled or fraud

Withdrawal rate risk (sustainable income) Lost or stolen assets

Sequence of returns risk Bank of mum and dad

Inflation risk Future legislation

Deflation risk

Taxation risk

Regulatory risk

Long-term care risk (including assisted at home

and long-term residential home risk)


How long will I live: have it documented on file

8Source: ONS website or link via www.retirementadvantage.com

Retirement Advantage – Information for adviser use only 9

lower end of range now starts towards 2.5% or 3% and not the previous 4%,

as we move into less generous capital market returns

“initial safe withdrawal” has been calculated in the range of 70% to 99% success,

not 50% probability

Source: Morningstar research 1st May 2016


Inflation risk: is it real?

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How do we budget: in retirement?As we age our expenditure needs will change…an example

Clothing

Bank of Mum

& Dad

Entertainment

Home repairs

Insurance

Car costs

Food

Holidays

Utility bills

Bank of Mum

& Dad

Care

Home repairs

Holidays

Insurance

Clothing

Public Transport

Entertainment

Food

Utility bills

Holidays

Entertainment

Clothing

Insurance

Home

alterations

Food

Bank of Mum &

Dad

Care

Utility bills

Active Passive Assisted / Care


Everyone's retirement journey will be different

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Active Passive Assisted / Care

State Pension

Drawdown Flexibility Additional Guaranteed

Income for life

Legislation creates innovation

Meeting certainty with flexibility

Information approved for adviser use only


Income DeathReturn of

fundValue

protectionGuarantee

period

Lifetime Annuity

Marginal rate, unless

death before age

75

Before 75 n/a No tax No tax

After 75 n/a45%*

Marginalrate

Marginal rate

DrawdownBefore 75 No tax n/a n/a

After 75Tax

Controln/a n/a

Annuity under

drawdown rules

Before 75 n/a No tax No tax

After 75 n/a**TaxControl

**TaxControl

* 45% tax charge, marginal rate confirmed in budget July 2015 from April 2016** Annuity death benefits are paid into Nil Income Successor Drawdown – same as IDD plan.

Tax position is Nil or Marginal rate depending on income taken

Changed retirement taxation: created innovation

Tax control is the key


New annuity death benefits

15

Source: Based on £50,000 pension pot in TRA Annuity; Healthy Male, 65 yr old, Retirement Advantage, 03/08/16

Insuring your pension savings – invested £50,000

£1,900

£2,000

£2,100

£2,200

£2,300

£2,400

£2,500

£2,600

No

guarantee

10 year

guarantee

20 year

guarantee

25 year

guarantee

30 year

guarantee

100%

moneyback£

40

£2

00

£3

10

£4

03

£2

70


Leaving a legacy for loved ones

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Total amount paid out – invested £50,000

£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

No

guarantee

10 year

guarantee

20 year

guarantee

25 year

guarantee

30 year

guarantee

100%

moneyback

Die after 1 year Die after 15 years

£2,510

£3

7,6

50

£2

4,7

00

£3

7,0

50

£4

6,2

00

£6

6,0

00

£4

9,8

50

Source: Based on £50,000 pension pot in TRA Annuity; Healthy 65 yr old, Retirement Advantage 25/11/16. Examples only.

£5

6,0

00

The Retirement Account

Innovation – New Pension Freedom Drawdown



How a “hybrid” solution works: for a cautious client

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Aggregated income

Cash Account - Decide on distribution

Pay out income Retain/reinvest

Pay agreed balance to client bank account

Pay any additional tax due

Drawdownfund and income

Guaranteed

flexible

income


What is The Retirement Account?

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One illustration, one application, suitability and annual review report

Flexi-access drawdown wrapper

Guaranteed Income• An annuity written under

drawdown rules

• Guaranteed income for life with

escalating income and death

benefit options

• 30 year guarantees and value

protection

• Provides the security of a

lifetime annuity but under

drawdown rules

Drawdown Account• Drawdown with simplified

investment choice

• Cash account for holding funds

when not immediately needed

• Can be used as a nest egg or for

providing regular or ad-hoc

income


External Investment governance: peace of mind

20

Square Mile

Investment commentary on funds

Up to date information on fund

strategy

Understanding of fund objectives and

how it meets them

Retirement Advantage

Understanding of customer needs

in retirement

“Has the strongest commitment

to governance, compared to any

other provider we partner with”

Richard Romer-Lee, Square Mile

Consistent and

regular reviews of

funds ensuring they

continue to meet

their stated

objectives

Minutes published

on our website


The Retirement Account Fund RangeOffering a choice of levels of risk dependent on the clients’ circumstances

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Cautious Balanced Adventurous

Index-tracking funds

Cautious Index Portfolio

0.25% OCF

Balanced Index Portfolio

0.25% OCF

Adventurous Index Portfolio

0.25% OCF

Peer awareHenderson Cautious

Managed0.82% OCF

AXA Framlington Balanced Managed

0.80% OCF

Threadneedle Global Equity

1.18% OCF

Outcome orientated

Standard Life GARS

0.94% OCF

Jupiter Merlin Balanced1.74% OCF

Jupiter Merlin Growth1.79% OCF

Income biasInvesco Perpetual

Distribution1.12% OCF

AXA Distribution0.86% OCF

Henderson Global Equity0.95% OCF

Protected

Protected Index Portfolio 0.86% OCF

Investec MAP 1.29% OCF

Cash

Insight Liquidity 0.10% OCF


Annuity pricing – There is not likely to be any significant difference in the annuity rate being offered between a Retirement Account annuity and one of our stand-alone products.

Product charge

Initial product charge of £150

Pension Drawdown charge

Annual charge (deducted monthly) determined by tiered scale based on amount of drawdown funds

Fund management charges and adviser fees

The Retirement Account: all charges

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Size of Drawdown fund Charge

Tier 1 – funds up to £25,000 0.6%

Tier 2 – funds between £25,000 and £75,000 0.3%

Tier 3 – funds between £75,000 and £150,000 0.2%

Tier 4 – funds above £150,000 0.1%


Pension Drawdown charge

Plus fund management charges and adviser fees

The Retirement Account: charges for income drawdown

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Size of Drawdown fund Charge

£100,000 0.35%

£150,000 0.30%

£250,000 0.22%

£500,000 0.16%


The Retirement Account: a drawdown for cautious clients

Drawdown Annuity

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Drawdown Annuity Drawdown Annuity

AbsorbRetirement

Risk

Full Drawdown

Insure Retirement

Risk

Blend DD with Guaranteed

Income

Avoid Retirement

Risk

Full Guaranteed

Income

Designed with flexibility to manage capacity for loss


Innovation – Full tax control alive or dead



The Retirement Account: bridging the state pension

26

Case study: Jeremy age 60, £100,000 DD pension fund, working part-time


The Retirement Account: 5 years later

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Jeremy now 65 years, takes state pension, does not need the income

The Retirement Account: another 5 years later

Jeremy now 70 years, needs more income (pays carer and pays the bills)


Retirement Account: death benefit options

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Guaranteed Annuity

No death benefits

Dependant’s pension50%, 66%, 75% or 100%

Guarantee income periods1 – 30 years*

Remaining guarantee income can be commuted to lump sum

Money back guarantee up to 100%*

*one or other can be selected, not both together

Each tranche of GA can have it’s own choices

Pension Drawdown

Remaining fund paid as income (via beneficiaries own retirementaccount)

Remaining fund paid as lump sum (at our discretion taking into

account any expression of wish)


Pass funds to family: control over tax

29

Guaranteed Lifetime Annuity with

death benefits(Money-back option or up to 30 yr guarantee)

Drawdown Account(remaining funds)

Successor Drawdown Account

Both annuity and drawdown elements pass to successor drawdown account

on death

Lump sum, income and/or buy annuity


Tax controlled death benefits: annuity

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Peter aged 65 invested £100,000 into an annuity written under drawdown rules. 100% of

the money was invested in the new DD annuity with 30 year guarantee period paying

£4,169 a year. He dies after 20 years aged 85. He leaves his benefits 50% to his

daughter Michelle (age 50) and 50% to his daughter Jasmine a teacher (age 47)

Peter’s DD Annuity Account

• Total Income paid £83,380

• Death confirmed

Jasmine’s Beneficiary DD Account

•Reinvest income or commute lump sum £18,350

Each beneficiary is offered:

(1) Ongoing income

guarantee for next 10

years or

(2) Commuted value paid

to cash account

Michelle’s Beneficiary DD Account

•Yearly income of £2,084.50 for next 10 years (£20,845)

Retirement Account annuity illustration dated 22/7/16 Ref RA00024857


Suits clients who are…..Cautious, the pension fund is the primary asset for retirement and or there are capacity for loss concerns



The Retirement Account: who is the ideal client?

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Clients in existingDrawdown plans

Guaranteed Drawdown pensions

Final salary transfers

Fixed TermAnnuities

Capped and Flexible Cautious with income

70 plusPoor Health / lifestyleLow capacity for loss

Values flexibility andcertainty

Unit linked guaranteeddrawdown pensions

Taking incomePoor healthPreserving capital

Values certainty andflexibility

Taking benefits

Wealth over incomePoor healthSingle, divorced,widowedHeavily in debt

Values flexibility withcertainty

Maturing plans

Rates not recoveredProtecting capitalFlexible income

Values flexibility over certainty


Why are people transferring final salary pensions?

Scheme likely to enter

Pension Protection Fund

(PPF) assessment period

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Right reason, right time & right solution

Poor health, smokes

or degree of illnessSingle scheme members

i.e. single, divorced widow(er)

Poor death benefits for

deferred members

Desire for income flexibility and control

Multiple final

salary benefits


Example of final salary transfer

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Male 58, divorced, 2 children, moderate health issues with final salary scheme, transfer value £480,000

Benefits from DB schemeTax-free lump sum - £70,650Pension - £10,711 50% spouses benefit, escalating at LPI

Figures based as at 13/10/2016. Illustration reference: RA0023763 before £150 TRA Product ChargeFor DB transfers, outcome depends on the individual circumstances of each client

Transfer to Blended solutionTax-free lump sum - £112,500Pension - £10,711 (using £276,000 of fund)100% money-back guarantee, no escalation. Pension Drawdown - £91,500


Summary: The Retirement Account an award winning drawdown for cautious clients

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Guaranteed

annuity

80% Protected Index

Portfolio

Sleep-easy

flexi access

drawdown

Drawdown tax-

advantaged wrapper

Winner: Pensions

innovation awards

• Moneywise

• ILP Moneyfacts


Pay the bills, enjoy retirement BUT never run out of money!

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Learning objectives for today

37

Identify the challenges facing cautious

retiring clients and their advisers

Demonstrate how a cautious retiring

client can remain invested longer

while mitigating risks

Describe the type of clients using new

innovation to secure their own

retirement in uncertain times

110 Cannon Street

London

EC4N 6EU

Existing business and quotes

0800 0327 690

New enquires0800 912 9945

retirementadvantage.com

38

Thank you – Any questions?

Telephone calls may be recorded for training and quality monitoring purposes. Retirement Advantage™ is a trading name of MGM Advantage Life Limited. Registered no. 08395855. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Retirement Advantage™ and the Retirement Advantage™ logo are trademarks of MGM Advantage Holdings Limited. Registered in England and Wales. Registered office MGM House, Heene Road, Worthing, West Sussex, BN11 3AT.

Innovation and retirement planning for cautious, middle ...Innovation and retirement planning for...

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