The Partnership Enhanced Retirement Account

Transcription

1 For financial advisers only not for retail clients The Partnership Enhanced Retirement Account ADVISER GUIDE

2 2 ENHANCED RETIREMENT ACCOUNT Contents Introduction 3 The ERA an all-in-one solution 4 Benefits for you & your clients 5 Why Partnership? 7 Assessing client income needs 8 How the ERA works 10 A simple investment choice 12 Tax and the ERA 14 Q&As 15

3 ENHANCED RETIREMENT ACCOUNT 3 People are complicated. Their retirement solution needn t be. Pension products have a reputation for being expensive, complicated and inflexible. But it doesn t have to be that way. When it comes to accessing their retirement fund, most people want three things: Certainty about their income. Flexibility for the future. The ability to leave money to their family when they die. We also think they will appreciate a convenient, simple solution that gives them what they want in one easy to set-up, easy to understand product. Introducing the Enhanced Retirement Account (ERA) The ERA is a new tax-efficient solution that combines security with flexibility, at low cost. It s designed for clients who want a guaranteed income in retirement, and Flexi-Access Drawdown.

4 4 ENHANCED RETIREMENT ACCOUNT The ERA. An all-in-one retirement solution The ERA is a Self-Invested Personal Pension Plan (SIPP) comprising three core elements: a guaranteed income for life, Flexi-Access Drawdown and a Cash Account. The Guaranteed Element is an annuity which provides a guaranteed income for life. The Flexible Investment Element allows clients to keep surplus funds in Flexi-Access Drawdown. These funds can then be taken at any time: as a lump sum, as ad-hoc withdrawals, or to purchase additional guaranteed income for life. The Flexi-Access Drawdown offers a choice of lowcost passive funds from Vanguard, which means clients can easily select the investment options that are right for their needs. The third element of the ERA is a cash account which can be used to consolidate income payments. We believe the ERA offers your clients a combination of security and flexibility in one easy to manage, tax-efficient solution. Better for them, better for you Many advisers believe that a retirement solution made up of a blend of different products is more likely to provide the results people want. But researching and creating bespoke solutions from different product providers uses up valuable time and energy that could be spent with clients. Combining the different elements in one simple competitively priced product makes life a lot easier for everyone especially when it s backed by the expertise of Partnership. Self-Invested Personal Pension (SIPP)^ Providing security, flexibility and tax efficiency in one simple low-cost solution. Money can be moved either way Guaranteed Element Flexible Investment Element Investment Funds (Provided by Vanguard) Cash Account One Income Payment (One P60) Income payments are paid into the Cash Account. No income tax payable within the SIPP. ^ The SIPP and Flexible Investment Element are provided by the award winning Investment Funds Direct Limited (IFDL).

5 ENHANCED RETIREMENT ACCOUNT 5 Benefits for you A simple, packaged SIPP solution offering a guaranteed income for life, Flexi-Access Drawdown and a Cash Account everything in one place. Simple to set up and manage. One application, one income payment and one P60 helping to ensure that your client pays the right amount of income tax. Low cost, complete transparency; annual charges only 0.43% 0.59%* a year. Ensures your client will never run out of income. Match your client s capacity for loss. Medical underwriting (a simple questionnaire) is the cheapest way to secure core income. Ongoing advice opportunities as clients income and expenditure needs change (equity release and long term care funding). Advice charge can be facilitated via the SIPP. Benefits for your clients A complete, flexible solution, offering a guaranteed income for life, cash when it s needed and a choice of investment funds, all in one account. Provides certainty and peace of mind. Tax efficient; if the client doesn t need income, it can be reinvested or held as cash in the ERA without incurring income tax until it is withdrawn. Low cost and transparent; annual charges are only 0.43% 0.59%* a year, with no transaction fees or hidden extras. Simple to set up and manage; everything the client needs in one easy to understand solution, with one income payment no need for multiple products from different providers. Leaves money for the fun things golf, holidays, seeing grandchildren. Combines the best of both words security and flexibility at a low cost. * A minority of the funds have a one-off charge to cover dealing costs. This charge is covered in the fund literature.

6 6 ENHANCED RETIREMENT ACCOUNT A new ERA in retirement solutions The ERA is a simple, easy to understand solution that meets three core client needs in one integrated package: 1) Provides a guaranteed income for life. 2) Offers the flexibility for clients to take ad-hoc withdrawals as and when required. 3) Any unused funds can be passed to their family on death. The ERA is also easy to manage: it offers you and your clients the convenience of a single solution, while providing all the advantages of a blend of products. Investment options The Guaranteed Element of the ERA is provided by Partnership. The investment options for the Flexible Investment Element are provided by Vanguard. Founded in 1975 in the US, Vanguard is now one of the world s largest investment companies and a leading name in passive investment strategies, with 2 trillion of assets under management on behalf of millions of individual investors.* You ll find more details on page 12. Please note: the income from the Guaranteed Element is guaranteed for life. However, what your client gets back from the Flexible Investment Element is not guaranteed and may fall or rise depending on how much income they withdraw from it and the how the underlying investments perform. *As at 31 December 2014.

7 ENHANCED RETIREMENT ACCOUNT 7 Why Partnership? We are experts in retirement solutions and the UK s longest-established provider of enhanced annuities. We are also strong believers in the value of professional advice, and have won many awards for the quality of our service. We see retirement differently At Partnership, we specialise in providing financial solutions for people with health or lifestyle issues. Our enhanced annuities could save your clients money compared to a standard insurer. Even common conditions like smoking, drinking or being overweight could qualify your clients for a pension uplift which means the cost of securing their retirement income would be lower. Even if your clients don t have any health or lifestyle conditions, the combination of low-cost charges and simplicity may mean that the ERA is wellplaced to meet their needs. Moneyfacts 2015 Professional Adviser Awards 2015 Winner Best Retirement Provider Financial Adviser Service Awards 2014 Life & Pensions Moneywise Pension Awards 2014 Winner Best Enhanced Annuity Provider Investment Life and Pensions Moneyfacts Awards 2014 Winner Best Enhanced Annuity Provider Investment Life and Pensions Moneyfacts Awards 2014 Highly Commended Best Annuity Service Moneyfacts stars

8 8 ENHANCED RETIREMENT ACCOUNT Get your clients the income they need With average UK life expectancy increasing, your clients could need an income for longer than expected. For example, at age 65 most women think they will live another years. In fact life expectancy for a 65-year-old woman is 20.9 years (18.4 years for a man) so most people are underestimating how long they will live in their retirement. Of course these are only averages so many people will live longer than this*. The ERA provides a guaranteed income that will never run out no matter how long a person lives for, protecting them against the risk of outliving their retirement fund. The first step is to assess how much income is actually required. Target Income Calculator Our online tool (available at partnership.co.uk/calculators) allows you to assess your clients income needs to identify any shortfall. It takes into account other income, such as state and pension scheme benefits or rents from property, whilst showing the total cost of their regular outgoings. The Target Income Calculator also turns the traditional approach to annuities on its head. Instead of asking, how much income can my client get with this fund?, it allows you to find out how much will it cost to secure the required amount of income?. Because we underwrite each client individually, we may be able to offer them a better deal. Over 20 years, we have built a unique resource of medical and longevity data that allows us to predict a person s life expectancy far more accurately than standard insurers, who typically look at averages based purely on age group. We want a straightforward retirement solution that gives us everything we need in one place

9 ENHANCED RETIREMENT ACCOUNT 9 and the income they deserve Our Target Income Calculator includes some straightforward lifestyle and medical questions. This will help you to discuss general health issues and the benefits of annuities with your clients. Many people do not understand the importance of full disclosure when buying an annuity. Unlike health or life insurance, where medical problems mean reduced cover or higher costs, the ERA generates a better return to people with health or lifestyle conditions. Who provides the ERA? The Partnership Enhanced Retirement Account is a registered pension scheme known as a Self-Invested Personal Pension (SIPP). The SIPP is provided by Investment Funds Direct Limited (IFDL). Within the SIPP, the Guaranteed Element is provided by Partnership and gives your client a secure level of income, guaranteed for the rest of their life. The Flexible Investment Element is provided by IFDL and can invest in a range of funds giving them the opportunity for investment growth. The client s contract is with IFDL. The trustee of the SIPP will purchase the Guaranteed Element from Partnership on the client s behalf. The investments in the Flexible Investment Element are managed by Vanguard. Who is it for? The ERA is designed for the mass market clients with pension funds of 50, ,000. We believe that in general, these people: Are looking for the certainty of a guaranteed income but want the flexibility to access cash when needed. Appreciate the peace of mind of having everything under one roof. Want simple, low-cost, transparent solutions. Would like to leave any unused funds to their family when they die. May have health or lifestyle conditions which mean they qualify for a higher income. GUARANTEED ELEMENT provided by Partnership A guaranteed income for the rest of their life TAX-FREE LUMP SUM FLEXIBLE INVESTMENT ELEMENT provided by IFDL A choice of 8 funds to invest in provided by Vanguard Asset Management A cash account to receive guaranteed income payments from Partnership and to pay flexible withdrawals *Source: Office of National Statistics, Life Expectancy at Birth and at Age 65 for the UK, released April 2015.

10 10 ENHANCED RETIREMENT ACCOUNT How could this work in practice? John Smith, 65, Type 2 diabetes, smoker. Has a gross pension fund of 133,333. After taking his 25% Tax-Free Cash (PCLS) he will have 100,000 remaining. John s priorities are: 1) To ensure he has a known level of guaranteed income to cover his essential spending ( 5,000 p.a.). 2) To have access to part of his fund at any time. 3) To pass any remaining funds onto his family. John s adviser researches the market to find the most cost-effective way of insuring the minimum income requirement. The best standard annuity would require a fund of 84,964 to provide the guaranteed income of 5,000 p.a*. This leaves 15,036 to be invested in the Flexible Investment Element. However, due to John s health and lifestyle conditions, Partnership s ERA can provide the minimum income ( 5,000) with a fund of 74,548**. That leaves 25,452 to be invested in the Flexible Investment Element. The difference is 69% more 10,415 extra for John to leave invested, or spend as he wants! John s adviser recommends the ERA, which will provide: 1) A Guaranteed Element which will ensure 5,000 is payable each year for the rest of John s life, however long this may be. 2) A Flexible Investment Element which is invested in a range of passive investment funds or cash and can be accessed at any time. This could be used for a rainy day fund, reserved for special purchases, left to loved ones, invested for a growing income or shape John s income to suit his retirement. Over the course of the year the product charge of 0.35% on the value of his Flexible Investment Element would cost him 89.08***. This example applies to a customer with health conditions, but even customers with excellent health and lifestyles can have an ERA. According to the ABI, 1 in 2 people could qualify for an enhanced annuity Source: Association of British Insurers *Based on lowest quotation from AMS portal, 10 September **Partnership quotation, September ***Assumes charges of 24bps for fund, 0.75% ongoing a/c, 2% of fund invested in cash account (not subject to the product charge) and investment returns of 3%.

11 ENHANCED RETIREMENT ACCOUNT 11 How it works Once your client has decided how much guaranteed income they require, the other part of their fund can be invested in a range of investment funds to suit their attitude to risk. If required, your client can convert more or all of the funds in the Flexible Investment Element into guaranteed income at any time. If they don t need a guaranteed income, the income payments can be rolled up in the cash account and not incur income tax until they choose to access them. Income can be taken monthly, quarterly, half-yearly or annually. Example A Guaranteed income payments start immediately. Top-ups from the Flexible Investment Element provide additional income. ENHANCED RETIREMENT ACCOUNT 100,000 Example B Guaranteed income payments start immediately. Customer tops the guaranteed income up from the Flexible Investment Element until age 72 and then converts the remaining flexible fund into guaranteed income. ENHANCED RETIREMENT ACCOUNT 100,000 GUARANTEED ELEMENT 74,548 FLEXIBLE INVESTMENT ELEMENT 25,452 GUARANTEED ELEMENT 74,548 FLEXIBLE INVESTMENT ELEMENT 25,452 An annual income of 5,000 guaranteed for life from 74,548 in the Guaranteed Element. 25,452 in the Flexible Investment Element provides top-ups of between 800 and 4,000 over 24 years, depending on money needed for ad-hoc expenses. When the customer dies, all funds left in the Flexible Investment Element can be passed on to dependants. Income 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, YEAR Withdrawals from the Flexible Investment Element Secure Income The level of income achieved by the Flexible Investment Element within these examples is purely illustrative and is not a reliable indicator of future performance. GUARANTEED ELEMENT 22,319 An annual income of 5,000 guaranteed for life from 74,548 in the Guaranteed Element. 25,452 is allocated to the Flexible Investment Element at outset and the customer takes out income between 500 and 1,500 from the flexible part over 7 years. In the beginning of Year 8 there is still 27,437 left under the Flexible Investment Element. The customer converts 22,319 into an additional guaranteed income of 2,000 (leaving the remainder in the Flexible Investment Element to exceed the minimum level requirement of 5,000). This increases their total guaranteed income to 7,000 per year for the rest of their life. Income 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, YEAR Withdrawals from the Flexible Investment Element Secure Income The level of income achieved by the Flexible Investment Element within these examples is purely illustrative and is not a reliable indicator of future performance. Note: Initial guaranteed income is based on a 65 year old, single life, payments in advance, level payments, diabetic type 2, high BMI, high blood pressure and retinopathy. The second guaranteed income is based on a 73 year old with the same criteria.

12 12 ENHANCED RETIREMENT ACCOUNT A simple investment choice The ERA offers your clients a range of investment funds, allowing them to invest the Flexi-Access Drawdown element of their account in accordance with their needs and appetite for risk. The funds have been designed to provide a simple, straightforward solution, with no need for complicated portfolio reviews or complex strategies. Clients can switch between the funds and access their money at any time without charge. Vanguard The philosophy of passive investment Vanguard argues that although active managers can add value at least some of the time research has shown that index funds give effective exposure to the equity and bond markets, with significantly reduced volatility. Index investing helps avoid common pitfalls and emotional biases that can harm returns and increase risk, such as chasing topperforming funds or asset classes, and trying to time the market. Using static asset-allocation portfolios can also help you to shift client conversations from the topic of investment performance to critical financial planning areas such as estate planning, which entail less market risk. Please note: the income from the Guaranteed Element is guaranteed for life. However, what your client gets back from the Flexible Investment Element is not guaranteed and may fall or rise depending on how much income they withdraw from it and the how the underlying investments perform. Introducing the LifeStrategy Funds LifeStrategy is a series of all-in-one portfolios, built from Vanguard s index funds. Offering exposure to UK and global equities and bonds, their range of risk/return profiles lets you find the fund that s right for your client. LifeStrategy fund options: Vanguard LifeStrategy 20% Equity Fund Vanguard LifeStrategy 40% Equity Fund Vanguard LifeStrategy 60% Equity Fund Vanguard LifeStrategy 80% Equity Fund Vanguard LifeStrategy 100% Equity Fund *As at 31 December 2014.

13 ENHANCED RETIREMENT ACCOUNT 13 In addition to the five LifeStrategy funds there are three UK single-asset class Vanguard funds available. Additional fund options: Vanguard FTSE UK All Share Index Unit Trust Vanguard UK Government Bond Index Fund Vanguard UK Investment Grade Bond Index Fund LifeStrategy the key benefits Built from low-cost index funds. Broad exposure to equities and bonds. Range of strategic weightings to suit client needs. Regularly rebalanced to target weights to prevent portfolio drift. Single fund solution lets you focus on what you do best. Details of the funds and their charges, including the fund factsheets and Key Investor Information Documents, are available from Partnership s website, partnership.co.uk/era

14 14 ENHANCED RETIREMENT ACCOUNT Tax and the ERA Tax calculator This tool sets out the tax consequences of your client taking all of their pension pot at once, including their full entitlement to tax-free cash, and any additional income whether from pension income or earnings. It is intended to assist you in setting out the impact of one of the options that your client could take. The Tax Calculator is available at partnership.co.uk/era. What tax is payable? The amount of tax payable on death benefits depends on whether the client dies before or after age 75, as shown in the following table: Under age 75 at date of death Age 75 or over at date of death Form of payment Tax payable Tax payable Lump sum payment of residual pension pot to beneficiaries Income payments from residual pot to beneficiaries Value protection lump sum Guarantee period income Dependant s pension Nil Nil Nil Nil Nil Marginal income tax rate of individual beneficiary or 45% if paid to non-individual such as a trust Marginal income tax rate of beneficiary Marginal income tax rate of beneficiary Marginal income tax rate of beneficiary Marginal income tax rate of beneficiary Please note taxation is dependent on individual circumstances and is subject to change at any time.

15 ENHANCED RETIREMENT ACCOUNT 15 Q&As What are the options for the Guaranteed Element? Level or Escalating Income: to preserve the spending power of their guaranteed income against inflation, your clients can choose to have the income increase automatically over time. Income can be escalated by a rate of between 1% to 10% each year. It can also be increased in line with the Retail Prices Index. Dependant s Benefit: clients can choose up to 100% of their guaranteed income to be paid to any named beneficiary in the event of their death. Upon their death, the selected level of their guaranteed income payments will be made for the remainder of the chosen beneficiary s life, however long they live. Guarantee Period: clients can ensure that their guaranteed income will be paid for a minimum number of years. They can select a Guarantee Period of up to 20 years meaning that even if they die during this period, guaranteed income will still be paid to their beneficiaries for the remainder of the outstanding period. Value Protection: clients can protect up to 100% of the original purchase price of their guaranteed income. Upon their death, the selected level of the purchase price of their guaranteed income, less any income payments already made, will be paid to their beneficiaries as a lump sum. Please note that the cost of providing an income will go up if any of these options are selected. What are the charges? There is no explicit charge for the Guaranteed Element of the ERA. The cost of providing the Guaranteed Element is included in the price of the income. For the Flexible Investment Element, there is an annual charge between 0.43% 0.59%*, depending on which investment funds the client chooses. This covers the cost of administering the ERA and running the investment funds. The minimum charge will be 60 a year. For example: if the client had a 100,000 pension fund (after taking tax-free cash) and used 60,000 to buy an annuity (the Guaranteed Element) and invested the remaining 40,000 in the Flexible Investment Element, they would pay from 172 to 236 a year depending on the funds chosen and their respective annual charges (0.43% to 0.59%). Any adviser charge agreed with your client can be deducted from the account. Will my client need to have a medical? No, though they may be asked to perform a smoker test. We will underwrite on the basis of information supplied. It is important to answer all questions fully and tell us anything that might help us offer your client a better rate. What else is included? As it is set up on a platform, the ERA also gives clients access to a stocks and shares ISA. This is an optional feature to support the ERA proposition. If your clients do not already have an ISA for this tax year, they could use this ISA to invest their tax-free cash, for example, or other savings outside of a pension. For more details, see the IFDL ISA Key Features Document. Do they have a right to cancel? Yes. The client can cancel their ERA within the first 30 days. They must return all of the funds, including any cash and income payments they have received. Their investment (less any fall in market value) will then be transferred back to the ceding scheme. Where can I get more information? Contact the adviser support line on ** or sandc@partnership.co.uk * A minority of the funds have a one-off charge to cover dealing costs. This charge is covered in the fund literature. **Telephone calls may be recorded for training and monitoring purposes. Local call rates apply.

16 Regent House, 1-3 Queensway, Redhill, Surrey RH1 1QT * *Telephone calls may be recorded for training and monitoring purposes. Local call rates apply. The Partnership Enhanced Retirement Account is provided by Investment Funds Direct Limited Partnership is a trading style of the Partnership group of Companies, which includes Partnership Life Assurance Company Limited (registered in England and Wales No ). Partnership Life Assurance Company Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The registered office is 5th Floor, 110 Bishopsgate, London EC2N 4AY. Investment Funds Direct Limited (IFDL) are registered in England and Wales No and authorised and regulated by the Financial Conduct Authority. IFDL is part of the Royal London Group, registered in England and Wales number Head office; 55 Gracechurch Street, London EC3V 0RL. RET