The Retirement Account. Certainty, flexibility and simplicity for life

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1 Certainty, flexibility and simplicity for life

2 Introducing Retirement Advantage Previously known as MGM Advantage and Stonehaven, we are a well-established company that can trace our roots back over 150 years. In 2015 we changed our name to Retirement Advantage merging our equity release and retirement income divisions, to help us provide those who are in, at or approaching retirement with a range of simple, secure and flexible solutions to suit their needs. As retirement specialists we believe we understand the needs of our customers better. And with almost 1.8bn of funds under management and our retirees relying on us for their income, you can trust us to keep your money safe. 2

3 It s time to enjoy your new pension freedom Retirement is an exciting new chapter of life. For the first time in 30 to 40 years you get to choose what you re going to do each day be it relaxing with friends, taking up new hobbies, or carrying on working. You could even start your own business (Colonel Sanders was 65 when he opened his first KFC). The point is it s entirely up to you. To prepare for this major life change you need to think carefully about how to make the most of your financial assets. New pension freedoms mean that you now have more choice and flexibility about what happens to your pension pot than ever before. But of course, before making any important decisions about your future, it s vital that you seek independent, expert advice. 3

4 What s important to you in retirement? Our years of experience have taught us that people most often look for certainty, flexibility and simplicity in retirement. I want a guaranteed income for life and be able to provide for my family when I m gone. I want to have the flexibility to alter my plans if my circumstances change, to access all or some of my money, and give it a chance to grow. We want to organise our retirement finances in one place, be able to reassess our options at regular intervals and pass any money left to our family in a tax efficient way. Based on the needs of our customers, we ve developed The Retirement Account, designed to help you make the most of your pension freedoms. By combining a Guaranteed Annuity and Pension Drawdown into one simple account, The Retirement Account offers considerable flexibility and choice helping you manage your pension investments and benefits in a tax efficient way. 4

5 What is a Guaranteed Annuity? When you retire, you need to make sure you have enough money to last the rest of your life. So, in return for some or all of your pension savings, a Guaranteed Annuity can pay you a secure, regular income for life, no matter how long you live. A Guaranteed Annuity may be a sensible way of covering your fixed day-to-day living expenses in retirement, alongside your state pension and any other sources of income. The downside is that, if you put all your money into a Guaranteed Annuity, you won t have a nest egg for unforeseen expenses (like paying for a new boiler or broken down car) or for treats (like holidays). Remember, inflation will reduce how much your income is worth over the years. What is Pension Drawdown? Pension Drawdown gives you more control over your savings and you can access your money whenever you want. Put simply, your money is allocated to funds that are invested in shares, bonds, property and other financial investments giving your pot of money a chance to grow and counter the effect of inflation. However, there is the potential risk of your investments not performing as well as hoped. If you put all of your money into Pension Drawdown you risk running out of money if your income or withdrawals are in excess of fund growth. It s difficult to budget when you don t know how long you re going to live. 5

6 the best of both worlds Instead of having to choose between a Guaranteed Annuity and Pension Drawdown, The Retirement Account gives you the option of combining the two. You can choose to have the security of a Guaranteed Annuity to cover your everyday living essentials such as food and utility bills. It also gives you the option of easy access and opportunity for growth of your Pension Drawdown funds - meaning you re ready for life s unexpected expenses and occasional treats. However the value of investments can go down as well as up. Both parts of the account can provide the ability to leave money to loved ones. 6

7 Guaranteed Annuity A guaranteed regular income to cover your everyday living essentials Pension Drawdown A pot of money to use as a nest egg and for occasional expenses or for regular income withdrawals Cash Account Funds from the Guaranteed Annuity and the Pension Drawdown are paid into here Because you decide what funds you take out of the Retirement Account, you can adjust how much income you receive and how much income tax you pay. 7

8 A snapshot of what The Retirement Account offers The ability to take up to 25% of your pension fund as a tax-free lump sum, with complete freedom to do what you like with the rest. The choice of how much of your money is invested in Pension Drawdown and how much will purchase a Guaranteed Annuity. You have the flexibility to alter your account as time goes by. For example, you may put all of your money in Pension Drawdown initially, but then gradually move funds to the Guaranteed Annuity as you get older. The flexibility to change your Pension Drawdown and Guaranteed Annuity income levels according to your lifestyle and financial planning needs. 8

9 The ability to take out lump sums from your Pension Drawdown whenever you want, to top up your guaranteed income, or for those unexpected times when a little extra money is needed. A range of thoroughly researched funds which you can invest in according to your preference at any time. The ability to pass on money to your loved ones. What s left in your Pension Drawdown can be passed on to whoever you wish. If you choose the option to protect some or all of the income in your Guaranteed Annuity, that can be passed on too. Tax planning features that can help you and your beneficiaries manage how much income you receive and how much income tax you pay throughout your retirement. 9

10 Guaranteed Annuity: How it works If you choose to purchase a Guaranteed Annuity within your Retirement Account, the income you receive will depend on a number of things including: The size of your pension fund used to buy the Guaranteed Annuity Your age and personal circumstances (for example where you live, your lifestyle or medical history) You ll also need to decide how you d like to receive your income, for example whether you want it to stay the same (level) or rise in line with inflation. You ll need to decide if you wish to make provision for loved ones in the event of your death. This provision could be in the form of an ongoing income for the rest of their life or a lump sum or both. You can also choose how often income is paid monthly, quarterly or yearly. Income will be paid in arrears which means we ll pay you at the end of your chosen period. 10

11 The Retirement Account Pension Drawdown: How it works With Pension Drawdown you can take as much or as little of your money as you want while it remains invested. So you can take no money out initially and just leave your funds invested, or you can take a regular income and/or just withdraw money from your fund when you want. 11

12 Choosing investment funds within Pension Drawdown What we offer: With Pension Drawdown, you ll need to choose investment funds that are right for you. Your financial adviser will help you do this. The Retirement Account offers a range of investment choices, including an option of both passive and actively managed funds. investments. The mix of assets in the fund will determine the balance between the potential risk and reward. Your financial adviser will discuss your investment preferences with you and select funds that match the type of investor you are. These funds may invest your money in shares, bonds, property and other financial CAUTIOUS BALANCED 12

13 Passive funds Passive funds track the performance of an index. This tracking is largely automated, so it s less expensive and passive funds tend to charge less than actively managed funds. Active funds Active funds are managed by a specialist investment manager, or team of specialists who have a certain amount of freedom over the specific investments they make. They use their knowledge and experience to try and beat the returns you could get by investing in passive funds. Making your choice You can find details of the investment funds available with The Retirement Account in the Investment Fund Summary Guide. All of our documents are available on our website along with daily unit prices and fund fact sheets. ADVENTUROUS Monitoring performance You can check how your chosen funds are performing on our website. Also, each year, we ll send you a statement showing the value of your funds. All of The Retirement Account funds have been thoroughly researched and have been carefully selected by Retirement Advantage, and an independent investment research business. Our investment specialists monitor the funds on a monthly basis so you can relax, knowing that your investments have the best opportunity to grow. 13

14 Providing for loved ones on your death Both parts of The Retirement Account can help you pass money on to your loved ones. Guaranteed Annuity The Retirement Account Guaranteed Annuity offers different ways to pass money on to your loved ones when you die. With the help of your adviser, you will usually select one or more of the following options (although it is not possible to choose both the Money-back guarantee and the Income Guarantee). Money-back guarantee This provides a lump sum on your death. The amount payable can be up to 100% of the amount you originally used to buy the Guaranteed Annuity, less all of the pension payments made to you at your date of death. in the event of your death, the annuity continues to be paid in full for the remainder of the Income Guarantee period. Dependant s income You can ensure that a dependant (spouse, partner or other dependant) receives a proportion of your income for the rest of their life should you die before them. The amount paid could be up to 100% of your income. Income guarantee You can choose to guarantee your annuity payments for up to 30 years. This means that 14 14

15 Pension Drawdown In the event of your death, any remaining Pension Drawdown funds will be made available to your loved ones. Because of the way The Retirement Account is structured your loved ones will have a great deal of flexibility in how they receive death benefits. This may prove useful if you die after the age of 75 in which case the benefits they receive are taxable. 15

16 Meet Jeremy Jeremy s 65 years old and has built up a 90,000 pension fund (after tax-free cash of 25%). He s had issues with his health over the last few years, so is keen to retire. He picks up a State Pension but aside from that this is his only source of income. His number one objective is to ensure that he generates enough regular income to see him through his retirement. In addition he would like a small amount of his savings to be accessible and would like to make sure his children end up with something should he die. His financial adviser suggests that Jeremy takes out a Retirement Account and using his 90,000 investment he: buys a Guaranteed Annuity with 75,000 of his investment. This provides him with just over 4,000 a year of secure lifetime income. uses the remaining 15,000 to invest in Pension Drawdown. His adviser helps him select a balanced fund, which invests in equities and other financial investments. He has complete freedom to dip into this investment whenever he wants. Jeremy sets up a 30-year guarantee on his Guaranteed Annuity. This would pay his beneficiaries an ongoing income after his death. So for example if he died after receiving 5 years of payments then the income would continue for another 25 years, or a lump sum could be paid immediately. The money in Pension Drawdown could be paid as a lump sum on his death. Guaranteed Annuity 75,000 4,000 a year Cash Account Pension Drawdown 15,000 To use as a regular income or as a nest egg Jeremy 16

17 Meet Rebecca Rebecca s a healthy woman aged 65 with a 150,000 personal pension fund. Her husband Sean is 63 and although he plans on working for a couple more years he has very little in the way of private and state pension entitlement. Rebecca currently receives a yearly pension income of around 15,000 from the State Pension and an ex-employer s final salary scheme. Given Sean s pension situation she d prefer it if she could have around 3,000 a year extra income right now ( 18,000 in total) to pay for life s essentials (food, clothing, gas, electric) with Sean s income on top. She s happy for some of her 150,000 to be used to secure that income but also wants the ability to dip into her savings for things like holidays, home repairs and emergencies. She is willing to take a little risk with her money but naturally errs on the conservative side. Her financial adviser suggests that Rebecca takes out a Retirement Account and using her 150,000 investment she: buys a Guaranteed Annuity with 54,000 of her investment. This provides her with the extra 3,000 a year of secure lifetime income. uses the remaining 96,000 to invest in Pension Drawdown. With her adviser she chooses an investment fund that suits her more conservative attitude to risk and she has the freedom to dip into her investment whenever she wants. Her adviser also explains that The Retirement Account is flexible enough to deal with their changing circumstances in retirement. So when Sean gives up work they may want to consider using more of her Pension Drawdown fund to secure more Guaranteed Annuity from her Account. They can review that at the time. Finally she agreed to set up death benefits which would provide a money-back guarantee should she die earlier than she hopes! Guaranteed Annuity 54,000 3,000 a year Cash Account Pension Drawdown 96,000 To use as a regular income or as a nest egg Rebecca Both of these examples are for illustrative purposes only. 17

18 Are you eligible? To qualify for The Retirement Account you must be at least 55 and no older than 85 (there is no maximum if you choose the Pension Drawdown option only). You and your financial adviser may need to provide us with some information about your health and lifestyle as part of your application, or we can call you to collect the relevant information. We will then provide you with a personally tailored quote, to get you the highest level of guaranteed income. To invest in the Retirement Account you need a minimum of 20,000 in pension funds after any tax-free cash has been paid to you (usually 25%). You must also be a resident in the UK when you apply, and when the policy starts. For full details of The Retirement Account, and other important information, please refer to The Retirement Account Key Features booklet. 18

19 And now for some advice Your finances are going to play a substantial role in your retirement. That s why we insist that if you haven t done so already you enlist a skilled and objective financial adviser to take a good look at your circumstances and long-term expectations. A financial adviser will assess which opportunities would serve you best, before committing to one (even if it means we may not be the right provider for you). For more information about finding a trusted, experienced adviser, please call or visit 19

20 If you would like a Braille, large print or audio version of this document please call us on The information in this document is based on our understanding as at September 2015 of current taxation, legislation and HM Revenue and Customs practice. All of these are liable to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. Telephone calls may be recorded for training and quality monitoring purposes. Retirement Advantage is a trading name of MGM Advantage Life Limited. Registered no Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Retirement Advantage and the Retirement Advantage logo are trademarks of MGM Advantage Life Limited. Registered in England and Wales. Registered office MGM House, Heene Road, Worthing, West Sussex, BN11 3AT /15