Innovation and retirement planning for cautious, middle and … · Innovation and retirement...
Transcript of Innovation and retirement planning for cautious, middle and … · Innovation and retirement...
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
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• 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
Retirement Advantage – Information for adviser use only
Challenges: converting clients assets into income
PensionSavings i.e.
ISA
Investments i.e. Unit trusts
Property
Income or Legacy
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£What about your Cautious, Middle and
Mass market clients?
Retirement Advantage – Information for adviser use only
Investment concerns: for the cautious investor
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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
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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
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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
Retirement Advantage – Information is for adviser use only
Cautious clients: retirement risks they will face
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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)
Retirement Advantage – Information for adviser use only
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
Retirement Advantage – Information for adviser use only
Inflation risk: is it real?
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Retirement Advantage – Information for adviser use only
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
Retirement Advantage – Information for adviser use only
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
Retirement Advantage – Information 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
Retirement Advantage – Information is for adviser use only
New annuity death benefits
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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
Retirement Advantage – Information is for adviser use only
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
Information approved for adviser use only
Retirement Advantage – Information for adviser use only
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
Retirement Advantage – Information is for adviser use only
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
Retirement Advantage – Information for adviser use only
External Investment governance: peace of mind
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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
Retirement Advantage – Information for adviser use only
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
Retirement Advantage – Information for adviser use only
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%
Retirement Advantage – Information for adviser use only
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%
Retirement Advantage – Information is for adviser use only
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
The Retirement Account
Innovation – Full tax control alive or dead
Information approved for adviser use only
Retirement Advantage – Information is for adviser use only
The Retirement Account: bridging the state pension
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Case study: Jeremy age 60, £100,000 DD pension fund, working part-time
Retirement Advantage – Information is for adviser use only
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 Advantage – Information is for adviser use only
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)
Retirement Advantage – Information is for adviser use only
Pass funds to family: control over tax
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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
Retirement Advantage – Information is for adviser use only
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
The Retirement Account
Suits clients who are…..Cautious, the pension fund is the primary asset for retirement and or there are capacity for loss concerns
Information approved for adviser use only
Retirement Advantage – Information for adviser use only
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
Retirement Advantage – Information is for adviser use only
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
Retirement Advantage – Information for adviser use only
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
Retirement Advantage – Information for adviser use only
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
Retirement Advantage – Information for adviser use only
Pay the bills, enjoy retirement BUT never run out of money!
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Retirement Advantage – Information for adviser use only
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
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London
EC4N 6EU
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