How to achieve quality retirement outcomes for your members

Transcription

1 How to achieve quality retirement outcomes for your members Speakers Andrew Pennie, Marketing Director, Intelligent Pensions Steve Patterson, Managing Director, Intelligent Pensions Chair John Moret, Chairman, Intelligent Pensions

2 George s Big Budget Announcement

3 How to achieve quality retirement outcomes for your members Pension decumulation is changing with annuities no longer the standard default Retirees will have more choice and increased flexibility over how they take their pension benefits and will need more support and guidance in the run up to retirement What does a quality outcome look like where the traditional 'cash + annuity option is not suitable? What are the key decision points and actions that drive quality outcomes? Fulfilling your obligations as trustees under the DC code

4 FCA s Risk Outlook for 2014 The decumulation phase of retirement income can cause risks to consumer outcomes over the long term. While recent proposals for pension reform plan to allow consumers to access any amount of their pension pot at age 55, the need for consumers to understand the options available to them at retirement is still paramount.

5 A global look at retirement and decumulation.. Andrew Pennie Intelligent Pensions

6 George Osborne s Budget Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. No caps. No drawdown limits. Let me be clear. No one will have to buy an annuity.

7 Options under DC pension liberalisation

8 Intelligent Pensions DC Pension Survey findings.. Annuity Purchase Historic Annuity Purchase post reforms Other 6% Annuity 94% Other 67% Annuity 33% Annuity Other Annuity Other Forecasting a fall in the number of members buying an annuity at retirement to 33%. But 92% currently using a de-risking (annuity) default investment strategy!

9

10

11 Schematic of the global annuity market

12 Annuity rates in the UK...

13 Options under DC pension liberalisation

14 The retirement planning fundamentals have not changed... How much can I afford to spend to live life today and have the peace of mind to have enough for all my tomorrows?

15 The longevity problem...

16 Distribution of death given (male) age now...

17

18

19 Will UK retirees blow their pension funds?

20 Australia: Risk of running out of money 20 years of compulsory pension contributions Annuity market share very small: 4% in 2012 But up from 0.2% in % took full pension withdrawal in early years Down to 50% now Of those, 25% have spent all pension savings by 70 But a lack of tax barriers for withdrawal and means-tested benefits encourages spending Fresh calls for restricting access to pensions

21

22 Intelligent Pensions DC Pension Survey findings: Top 3 challenges for better outcomes % of Respondents Lack of member engagement Lack of information about members' individual needs and objectives Delivering alternative investment options to match the new retirement choices. Timing of guidance guarantee (is 6 months before retirement too late?) External market conditions (e.g. falling annuity rates) Cost of delivering effective member support services and solutions

23 Engagement is vital to deliver better outcomes... Everybody s retirement will be different A more personalised and hands-on approach is required Guidance guarantee is positive but key decisions need to be taken years before delivery The UK is playing catch-up in many aspects of accumulation and decumulation particularly engagement.

24 How to achieve quality retirement outcomes for your members Speakers Andrew Pennie, Marketing Director Intelligent Pensions Steve Patterson, Managing Director Intelligent Pensions Chair John Moret, Chairman Intelligent Pensions

25 How to achieve quality retirement outcomes for your members When should DC members start considering their decumulation options? What factors should be considered? How would a drawdown exit strategy impact on asset allocation in the years approaching retirement? Most scheme members are in default investment strategies These are almost always predicated on the traditional cash + annuity option

26 Helping Members In The Run Up To Retirement Steve Patterson Intelligent Pensions

27 Retirement Means Different Things To Different People...

28 TPR s Retirement Communications Timeline

29 TPR s Retirement Communications Timeline Member support through new Guidance Guarantee

30 TPR s Retirement Communications Timeline Education and warm up but retirement still remote

31 TPR s Retirement Communications Timeline This is the period when members need to seriously consider their retirement options

32 TPR s Retirement Communications Timeline This is the period when members need to seriously consider their retirement options and look ahead to their financial future?

33 The Four Stages of Pension Decumulation 1. Our Annuity or Not online tool to help members assess several years ahead of retirement which option will be most suitable a) Cash + Annuity (or full cash out decision closer to retirement = guidance guarantee) b) Cash + Pension Drawdown c) Cash + Annuity + Drawdown d) Phased cash + phased annuity and/or drawdown 2. For those for whom the traditional cash + annuity or cash out option is unlikely to be suitable individual analysis and guidance Including guidance on the investment strategy in the years running up to retirement 3. Implementation of the at retirement solution 4. Ongoing management until all benefits are ultimately secured under annuities The Intelligent Pensions Solution

34 Our Annuity or Not tool involves 5 simple steps giving a RED, AMBER or GREEN result

35 For AMBER or RED outputs members are invited to book a free online consultation

36 INTELLIGENT PENSIONS analysis helping members look ahead

37 CASE STUDY Louise Bolan Louise is 57 and a member of he employer s DC scheme Her husband, Donald, works in Local Government and is 62, planning to retire at 65 Louise wants to know if she can give up work at 60 and, if she does, whether she should take an annuity or adopt the new flexi-access pension option announced in the Budget She feels that annuity rates are unattractive at present and likes the idea of being able to take out as much or little as she needs She and Donald have run stocks and shares ISA accounts for many years and she is quite comfortable about taking investment risk although she doesn t see herself as a gambler She decides to complete the Annuity or NOT online tool...

38

39

40

41

42

43 CASE STUDY Louise Bolan Having run the tool Louise sees that an annuity may not be the right option She is keen to explore the matter further and decides to book a free online consultation She completes a simple booking request and submits this to Intelligent Pensions She receives a call back within an hour from a retirement analyst at Intelligent Pensions to make the arrangements As Louise wants her husband to participate the consultation is booked for an evening Within a few minutes Louise receives a confirmation , which includes a request to return some basic financial information in advance of the appointment

44

45 15,000 80,000 7,500 7,500 20, ,000 60,000

46

47

48

49

50

51

52

53

54

55

56

57 CASE STUDY Louise Bolan As a result of the online consultation Louise and Donald were convinced that pension drawdown was the best option for Louise s DC benefits Donald asked what impact this would have on the current investment strategy for Louise s fund Louise said she had checked and she was still in her original default strategy which was based on retiring at 60 and was now 20% in cash, 50% in gilts, and 30% in a UK FTSE ALL Share tracker In their follow up report Intelligent Pensions said the level of equity exposure was too low, and that based on the analysis and Louise s personal risk profile this should be increased to 70%, with the balance being in a mix of property and fixed interest with the emphasis on corporate bond rather than gilts Louise is now looking at the alternative funds available

58 What Affects The Recommended Investment Mix? Risk profile Age Attitude to risk Dependency Benefit shape Cash flow analysis informs the strategy Early years are critical Defensive holdings essential Main portfolio risk graded balance of risk adjusted over time Lastly stress tested to assess capacity for loss (and continuously retested annually thereafter)

59

60 What Does The Pensions Regulator Expect? Trustees will clearly communicate to members the options available at retirement in a way which supports them in choosing the option most appropriate to their circumstances. Trustees should make members aware of the range of ways in which they can receive their retirement income. Communications to members should clearly describe these options and the importance of members making choices tailored to their own circumstances. Trustees should consider communicating with members between two and five years before retirement about their retirement options and encourage them to start considering these. Due to the complexity of the decisions that members need to take at retirement, trustees should emphasise the importance and advantages of taking financial advice in all of their retirement communications.

61 Talking to your employees about pensions a guide for employers (TPR & FCA) Question: How can I help my employees when they ask me which investment funds to choose for their pension? Suggest that members check what type of fund they invest in and decide whether it is appropriate for their circumstances (for example, many schemes offer a range of funds with different levels of risk), and explain that it is important that members regularly review the funds they are invested in. Suggest that employees consider seeing a financial adviser authorised by the FSA Question: What could I be doing when employees approach their retirement dates? Consider providing access to an adviser. The cost of this advice (up to 150 an employee each tax year) is not classed as a benefit-in-kind for employees, as long as it relates only to pensions and is not general financial and tax advice.

62 Pathways to Retirement Andrew Pennie Intelligent Pensions

63 Intelligent Pensions Pathways Service Available to all employees when they are within 5 years of scheme pension age Rolling 12 month service contract with employer Online Annuity or Not tool supplied free of charge Members with RED or AMBER outcome have option to receive a free online consultation with a qualified Retirement Analyst And a follow up report including copy of online analysis and suggested equity exposure for scheme fund choice Guidance is purely generic no product recommendations Charged at 150 per member session Maximum member sessions 1 per year

64 Pathways to Retirement

65 Pathways to Retirement Drawdown Annuity

66 TO FIND OUT MORE ABOUT OUR PATHWAYS SERVICE, VIEW OUR ONLINE TOOLS OR SEE A DEMONSTRATION OF OUR ONLINE ANALYSIS VISIT US AT STAND 402 INTELLIGENT PENSIONS LTD. AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY

67