REMOVING RISK FROM DB PENSIONS NAPF – TRUSTEE PENSIONSCONNECTION 15 TH JULY 2015.

REMOVING RISK FROM DB PENSIONS

NAPF – TRUSTEE PENSIONSCONNECTION

15TH JULY 2015

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Plus further new entrants e.g. Lloyds TSB/Scottish Widows and others

CURRENTLY ACTIVE INSURERSTHE BULK ANNUITY MARKET PLACE IN 2015

Insurers Minimum Premium Maximum Premium Deferred / pensioner Underwritten?

Partnership No min No max premium, but up to circa 300 lives Pensioner only Yes

Just Retirement No min No max premium, but up to circa 300 lives Both Yes

Aviva No min Circa £300m Predominantly pensioner Yes

Legal & General No min No max Both Yes

Canada Life None Circa £50m Pensioner onlyNo

but top slicing might be considered

PIC Circa £10-20m No max Both No

Rothesay Life Circa £100m No max Both No

Prudential Circa £100m No max Both No

NAPF - Trustee PensionsConnection

3NAPF - Trustee PensionsConnection

EVOLUTION OF THE MARKET


LARGEST DEALS

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RADICAL CHANGESIMPACT OF THE 2014 AND 2015 BUDGETS

2014/2015 BUDGETS

Secondary market in annuities

Freedom and Choice in Pensions

Material impact on

retail and bulk annuity

markets!


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Liability management exercises

• Pension savers have more choice

- Choice is good

- … but creates much greater complexity for

members – advice challenges

- Higher risk of scams?

- Potentially poor member outcomes?

• Could enable schemes to materially reduce size

of deferred population and associated liabilities

• Shift in profile of potentially interested members

CAPTURING THE OPPORTUNITIES – WHAT ARE THEY?

Implications for annuity market

• Retail annuity sales materially down

- … but not “dead”

• Stimulated increased capacity and new entrants

to the bulk annuity market

- Additional competition, both for underwritten

and traditional deals

- …but more at the smaller end… for now

• What about a secondary annuity market (DC

annuity related)?

IMPACT OF THE 2014 AND 2015 BUDGETS

Opportunities for successfully managing down liabilities and risks in pension schemes have increased as a result


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Liability management exercises

• Increased level of DB to DC transfers

- Larger pension entitlements may transfer

- Smaller entitlements may look to consolidate

outside of DB

- Potentially extended to members in

retirement?

- Needs to be advised… this is the challenging

component!

• Increase in Trivial Commutation exercises with

change to small pot rules

• Increase in Flexibility at Retirement (FaR)

exercises moving individuals into flexible

investment products

IMPLICATIONS FOR LIABILITY MANAGEMENT

Implications for annuity market

• Increase in the need/opportunity to potentially

integrate liability management with bulk

annuities

• An increase in partial wind-ups?

- Bringing together liability management and

buyout – like TRW and GKN?

- As more schemes become more mature and

true “legacy”, buyout likely to have greater

appeal

• Liabilities for deferreds will be reduced or

reshaped to better position schemes for future

buy-ins/buyouts

IMPACT OF THE 2014 AND 2015 BUDGETS

Increase in liability management activities, aimed primarily at deferred pensioners (making residual liabilities potentially more economic to settle)


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THE CURRENT PICTUREENSURING A HEALTHY MARKETPLACE

“THE AWKWARD SQUAD!” HYBRID

(e.g. DC/GMP underpin)

SMALL DB (e.g. <£5m)

SMALL INSURED

(e.g. with GAOs)


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How can we collectively improve the options/opportunities for these schemes?

• Is there a healthy marketplace for small/non-standard schemes seeking to buy out and wind up?

• Are schemes to blame for difficulties in getting quotations and/or closing deals?

• What is the best way to structure smaller/non-standard trades?

• How can we improve the efficiency and cost-effectiveness of buyout/windup exercises for the benefit of schemes and providers alike?

• Is GMP equalisation the elephant in the room?

LOOKING TO THE FUTUREENSURING A HEALTHY MARKETPLACE



POSSIBLE FUTURE JOURNEY PLAN?

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Whilst all reasonable care has been taken in the preparation of this presentation no liability is accepted under any circumstances by Jardine Lloyd Thompson for any loss or damage occurring as a result of reliance on any statement, opinion, or any error or omission contained herein. Any statement or opinion unless otherwise states should not be construed as independent research and reflects our understanding of current or proposed legislation and regulation which may change without notice. The content of this document should not be regarded as specific advice in relation to the matters addressed.

JLT Benefit Solutions Limited. Authorised and regulated by the Financial Conduct Authority. A member of the Jardine Lloyd Thompson Group. Registered office: The St Botolph Building, 138 Houndsditch, London EC3A 7AW. Registered in England No. 02240496. VAT No. 244 2321 96.

Martyn Phillips

Director and Head of Buyouts, Buyout Team

E: [email protected]

T: +44 (0)7796 998140

SOURCESUnless otherwise stated, the data on which the analysis in this report is based is provided by insurers on a quarterly basis. Market data is sourced from Thomson Reuter, FT.com and Google Finance Beta. We have also referenced JLT’s internal valuation assumptions guidance and the JLT monthly deficit reports, published at http://www.jltpcs.com/reports-research.aspx. All analysis has been undertaken by JLT. We have relied on the data provided and have not independently verified this information.

CONTACT


REMOVING RISK FROM DB PENSIONS NAPF – TRUSTEE PENSIONSCONNECTION 15 TH JULY 2015.

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