Professor Graeme Reid, Strategic Adviser to the National Centre for Universities and Business
THE HOME OF THE PROFESSIONAL ADVISER PREPARING BUSINESS OWNERS FOR PENSION REFORM GRAEME CARMICHAEL...
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Transcript of THE HOME OF THE PROFESSIONAL ADVISER PREPARING BUSINESS OWNERS FOR PENSION REFORM GRAEME CARMICHAEL...
THE HOME OF THE
PROFESSIONAL ADVISERPREPARING BUSINESS OWNERS FOR PENSION REFORM
GRAEME CARMICHAELBUSINESS DEVELOPMENT MANAGER
For adviser use only – not approved for use with clients
LEARNING OUTCOMES
To be able to demonstrate an understanding of:
The likely future use of traditional retirement solutions
The options available for appropriate advice considerations when approaching retirement flexibility
The creation and maintenance of sustainable incomes in retirement
The advice opportunities for adviser businesses in the current retirement market
AGENDA
Budget Changes
New World Choices
Planning Parameters
Longevity Issues
Regulatory Aspects
Case Study
PlanningWith
Pension Reform
BUDGET MARCH 2014
“Mr Deputy Speaker, what I am proposing is the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921.”
George Osborne, Chancellor
Your business may not be your pension…
Client Perspective
Being profitable to retirement
Surviving to retirement
Adviser’s Perspective
Auto Enrolment commitments
Personal planning and preparation
Business owners owe it to themselves to ensure they are in a position to take advantage of pension reform
Opportunities may appeal to their entrepreneurial background
Will need to be done in the hands of a professional adviser
How do you ensure your value exceeds their cost?
BUSINESS OWNER’S PRIORITIES PRIOR TO RETIREMENT?
FREEDOM AND CHOICE – WHERE ARE WE NOW…?
Flexi-Access Drawdown
Uncrystallised Fund Pension Lump Sum
Guidance
DB Transfers
Other aspects
• No MPAA if cash only• All new ID from April 2015• Capped continues
• Easier to administer than drawdown? • Tax treatment cash/income• MPAA
• Impartiality, access and costs?• MAS and TPAS
• Funded and private schemes ok• Advice opportunity?
• NRA link to SPA at 57 from 2028• Pension death benefits tax • New annuity flexibilities
vs
Source: Challenger Retirement income Research 2012
Property32%
Car19%
Debt12%
Annuity4%
buy annuities80%
THE RISK OF RETIREMENT RUIN WHEN DOES THE MONEY RUN OUT?
65 75 90
Sources: www.actuaries.org.uk: PCMA00/PCFA00 with 100% of medium cohort improvements
Moshe A Milevsky Feb 2006
Income = 5% of starting pot
Increasing at 3.5% pa
7% pa returns after charges
No cap or reviews
70 80 85
8680
20% loss in year 1
89
EXPECTANCY OF LIFE EXPECTANCY…
Source: O’Brian, Fenn, and Diacon, 2003, self-estimated life expectancy compared with GAD forecast life expectancy
DISTRIBUTION OF DEATHS: MALES OVER 60 IN 2010
83Average Age of Death
<83 = 49.7% >83 = 46.1%
83 = 4.2%
Source: ONS
60 110
GUIDANCE
4.29
From April 2015 there will be no requirement for consumers to ensure that the funds in their pension last for the rest of their life.
However, we believe it is important for consumers to understand the impact of making withdrawals over time on their remaining savings and their ability to go on making withdrawalsCurrent rules on income withdrawal address sustainability over time.
COBS CHANGES-SUITABILITY
3 Worse Rates?
2 Insufficient growth
4 Unsustainable income
1 Capital erosion
5 There may be tax implications
FCA POSITIVE COMPLIANCE – DRAWDOWN SUMMARY
Drawdown can be Extremely Useful
For the right client
Consider TFC
Requirements
Consider Income
RequirementsConsider all other
Options
Ensure Systemsare Effective
Ensure they are Reviewed
Regularly
Highly Personalise Suitability Reports
Failure to confirm Client Objectives
Unclear Advice
Help Client make an Informed Decision
TRADITIONAL RETIREMENT PLANNING…
Client Perspective
What is the impact of escalation?
What is the annuity rate?
Future Considerations
Impact of spouse’s benefit?
Return to support asset-backed or drawdown rate?
How do I understand the funding requirements required to achieve my plans?
How long will my retirement fund last?
What’s the maximum income I can take?
What return do I need to maintain my desired income?How do I plan for final lump sum or legacy?
How do I plan for planned lump sums in retirement?How does reducing my income in later life impact on estate planning?How do I take account of life expectancy and remaining funds?
Kate
60
English
£325,000 pot
Wants bridging income
Balanced investor
Assumptions: Yield 6.05% pa net of provider and ongoing adviser charges. 2% Initial adviser charge
OBJECTIVES…
Retain flexibility
Inflation protection
Holiday of a lifetime/replace car
Maximise death benefits
Bridging income
KATE – WITH VARIED INCOME STREAM?
Source: Prudential
Slowing downState Pension
Starting income £23,920
Handset Question
How much demand do you expect from your clients for retirement income modelling advice?
1. Something we already provide
2. Something that will need to be increasinglyincorporated into client support
3. No particular demand from our clients
SUMMARY
• Pension Reform will create significant advice opportunities with business owning clients
• Pension provision outside of business assets will continue to be vital
• Professional advice is necessary to support the extraction of value created by the Chancellor
LEARNING OUTCOMES
To be able to demonstrate an understanding of:
The likely future use of traditional retirement solutions
The options available for appropriate advice considerations when approaching retirement flexibility
The creation and maintenance of sustainable incomes in retirement
The advice opportunities for adviser businesses in the current retirement market