30-year Decumulation conundrum

30-year Decumulation conundrum Sponsors: @DefaqtoAdviser #DefaqtoRetirement

Today s running order Housekeeping Defaqto Architas Prudential Aviva Investors Defaqto

The Return of RDR? Frank Potaczek Head of Insight & Consultancy Defaqto

MiFID II Market structure Governance Communication

Why? Fallout from the Credit Crunch Regaining trust Single Market

FCA Timetable Summer 2015 Adoption & approval of legislation October 2015 FCA MiFID II conference December 2015 Consultation on implementation Early 2016 Measures finalised and published June/July 2016 FCA Policy Statement 3 January 2017 MiFID II comes into effect

Areas in scope Client categorisation Information to clients Conflicts of interest Client order handling Complaints handling Clear, fair and not misleading communications Client assets Inducements Third party payments ban Suitability Execution-only Best execution Investment advice Record-keeping Reporting to clients Remuneration Recording communications Investment advice Product governance and distribution Appropriateness

Product Governance What is Income?

Income Natural income From growth Drawdown

The nature of income How is it derived? Is it sustainable? How much does it cost?

Key MiFID II areas Corporate governance Product governance Communications

Diversified portfolio: Investing for long-term real returns Nathan Sweeney Senior Investment Manager Architas

The income conundrum Potential solutions for the income conundrum The Architas Diversified Global Income Fund (DGI)

Learning outcomes An investment solution to tackle today s low yield environment: Potential income generation by using multiple asset classes Access to a wide range of opportunities by investing globally Some of the best available managers accessed through an unfettered portfolio

The income conundrum

Read all about it Low interest rates and pension reform have captured the financial press headlines FINANCIAL TIMES UK ECONOMY UK rate cut may be needed, says BoE chief economist By Emily Cadman March, 19 2015 Online Misery for savers as one in three ISAs pay less than 1% interest and number of customers trapped in poor accounts doubles By LOUISE ECCLES, BUSINESS CORRESPONDENT FOR THE DAILY MAIL 7 March 2015 Savers Suffer Six Years of Record Low Interest Rates While the official rate of inflation now sits at its lowest ever level of 0.3%, over the last six years it has not been so forgiving for depositors, eroding the value of their cash By Emma Wall 3 March 2015 ADVISER Advisers welcome multi-asset income ahead of April reforms By Matthew Jeynes Published Mar 06, 2015

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 2057 2059 2061 Average life expectancy October roadshow #DefaqtoRetirement Life expectancy rising Financial planning is increasingly important 40 35 30 25 20 15 10 Males aged 55 Females aged 55 Males aged 65 Females aged 65 Source: Office of National Statistics, as at March 2015

Capital erosion at 3% inflation October roadshow #DefaqtoRetirement Inflation Inflation will erode investors purchasing power 120,000 100,000 100,000.00 85,873 80,000 73,742 60,000 40,000 63,325 54,379 46,697 40,101 20,000-0 Year 5 Year 10 Year 15 Year 20 Year 25 Year 30 Time since initial investment Source: Architas. Assumes constant annual inflation rate of 3% and no interest return for simplicity. If you place your money on deposit with a bank or building society, interest rates may fluctuate but your original capital investment will remain constant.

Cash is king? Inflation-beating savings interest is potentially a thing of the past 7.0 6.0 5.0 % 4.0 3.0 2.0 1.0 0.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 UK average savings account interest rate UK Core CPI YoY Source: http://swanlowpark.co.uk/savingsinterestannual.jsp. As at 30 June 2015

Yield % October roadshow #DefaqtoRetirement Changing yield environment A low rate environment may cause investors to reassess their risk appetite 9 8 7 6 5 4 3 2 1 0 Cash UK 10 Year bonds German 10 year bonds US 10 year bonds Global Corporate bonds Developed market high yield Emerging market debt UK equity Europe equity Cash Low risk bonds Risky bonds Equities US equity Japan equity 30 June 2005 16 June 2015 Source: Architas, Morningstar as at as at 30 June 2015. Past Performance is not a guide to the future. The value of investments can go down as well as up, and your client may not get back the amount they invested

Income ponds Low interest rates have forced income seekers to fish in 3 ponds High Income Stocks High Yield Debt Emerging Market Debt

Watch out for correlations Diversification across these ponds is not necessarily an optimal solution 1 0.8 0.6 0.4 0.2 0-0.2-0.4-0.6-0.8-1 Rolling three year correlations Jun-15 Dec-14 Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 High yield & Emerging market debt High yield & High dividend Emerging market debt & High dividend Past performance is not a guide to the future. The value of investments can go down as well as up and your client may not get back the amount they invested. Source: Architas & Morningstar, as at 31.08.2015

Filtering the investible universe results 90,189 funds on Morningstar 7,850 approved for sale in the United Kingdom 1,637 share classes with a pre 2003 inception date 752 with income share classes 240 funds with 10-year dividend history Source: Architas & Morningstar as at April 2015

No. of Funds No. of Funds October roadshow #DefaqtoRetirement Allocation of funds 140 120 100 80 60 40 20 0 Asset class Top 50 income distributors 2005-2014 Equity Fixed Income Money Market Multi-Asset Property Rest 50 45 40 35 30 25 20 15 10 5 0 IA sector Source: morningstar, bloomberg, aberdeen asset management, alliance trust investments, allianz global investors, artemis, AXA investment managers, baillie gifford, blackrock, BNY mellon, capita asset services, ecclesiastical, fidelity, henderson, HSBC, invesco perpetual, jupiter, lazard asset management, legg mason, legal & general investments, M&G, old mutual global investors, phoenix fund services, premier asset management, rathbone brothers, royal london asset management, schroders, smith & williamson, standard life investments, franklin templeton and seneca, as at 31.03.15.

Invest in the top 50 funds on 31/12/04 Annual Yield from an investment made on 31/12/2004 Average of all 240 funds Top 50 Yielding of 2004 Yearly Yearly Yield 3.10% 4.55% Dividend Growth Rate 1.10% -1.40% Total Return Achieved between 2005-2014 Average of all 240 funds Top 50 Yielding of 2004 Cumulative Annualised Cumulative Annualised Capital Return 54.79% 4.47% 8.69% 0.84% Income Return 31.03% 2.74% 45.50% 3.82% Total Return 85.82% 6.39% 54.19% 4.39% Source: bloomberg, aberdeen asset management, alliance trust investments, allianz global investors, artemis, AXA investment managers, baillie gifford, blackrock, BNY mellon, capita asset services, ecclesiastical, fidelity, henderson, HSBC, invesco perpetual, jupiter, lazard asset management, legg mason, legal & general investments, M&G, old mutual global investors, phoenix fund services, premier asset management, rathbone brothers, royal london asset management, schroders, smith & williamson, standard life investments, as at 31.03.15.

Cumulative dividend growth (%) October roadshow #DefaqtoRetirement 10-year dividend growth 70 60 50 40 30 20 10 0-10 -20-30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average Equity Fixed Income Source: Bloomberg, Aberdeen Asset Management, Alliance Trust Investments, Allianz Global Investors, Artemis, AXA Investment Managers, Baillie Gifford, BlackRock, BNY Mellon, Capita Asset Services, Ecclesiastical, Fidelity, Henderson, HSBC, Invesco Perpetual, Jupiter, Lazard Asset Management, Legg Mason, Legal & General Investments, M&G, Old Mutual Global Investors, Phoenix Fund Services, Premier Asset Management, Rathbone Brothers, Royal London Asset Management, Schroders, Smith & Williamson, Standard Life Investments, Franklin Templeton and Seneca, as at 31.03.15.

Total value of investment (gbp) October roadshow #DefaqtoRetirement Capital appreciation The value of an investment made on 01/01/2005 would have appreciated by 54.8% (an annual growth rate of 4.5%) over the last 10 years 160,000 150,000 140,000 130,000 120,000 110,000 100,000 90,000 80,000 70,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average Top 50 yield 2004 Past performance is not a guide to the future. The value of investments can go down as well as up and your client may not get back the amount they invested. Source: Bloomberg & Morningstar, as at 31.03.2015

Number of funds October roadshow #DefaqtoRetirement Consistency of dividend increases 60 50 40 30 20 10 0 0 1 2 3 4 5 6 7 8 9 10 Number of years fund increased dividends between 2005-2014 Source: Bloomberg, Aberdeen Asset Management, Alliance Trust Investments, Allianz Global Investors, Artemis, AXA Investment Managers, Baillie Gifford, BlackRock, BNY Mellon, Capita Asset Services, Ecclesiastical, Fidelity, Henderson, HSBC, Invesco Perpetual, Jupiter, Lazard Asset Management, Legg Mason, Legal & General Investments, M&G, Old Mutual Global Investors, Phoenix Fund Services, Premier Asset Management, Rathbone Brothers, Royal London Asset Management, Schroders, Smith & Williamson, Standard Life Investments, Franklin Templeton and Seneca, as at 31.03.15.

Potential solutions for the income conundrum

Opportunity knocks Why go Global Flexible Multi-asset

Why go global? No single region or asset class is consistently the best place to invest money Source: Architas. For illustrative purposes only. Based on an internal model.

Go global Nearly 90% of equity opportunities are outside the UK Global equity Global dividends 7.80% 15.0% UK Rest of the world UK Japan Emerging Market Asia Pacific Europe ex UK North America Source: Architas. For illustrative purposes only.

Go global Nearly 95% of fixed income opportunities are outside the UK Global high yield bond Global aggregate bond 4.96% 5.80% UK Rest of the world UK Rest of the world Source: Architas. For illustrative purposes only.

Return October roadshow #DefaqtoRetirement Why flexible? Often the better the return; the greater the risk For illustrative purposes only. Emerging Developed market equities REITs Preferred shares Convertible bonds High yield bonds Emerging market debt High quality corporate bonds Longer duration government bonds Shorter duration government bonds market funds Money Risk market equities

Benefits of an active manager Attractive yields may mean large drawdowns For illustrative purposes only.

Benefits of using a multi-manager P Delegated research and portfolio management. P Actively diversified across asset classes and investment management styles. P Access to a range of funds via a single administration process instead of several less paper work.

The Architas way of thinking Traditional income portfolio Diversified income portfolio Equity Equity Alternatives Cash Bonds Cash Bonds

Less correlated assets Alternative assets have less correlation to traditional investments Assets Equity correlation Bond correlation Asset Backed Securities 18% -13% Asset Leasing 35% 0% Catastrophe Risk -5% 27% Ground Rents 28% -16% Infrastructure 26% -8% Leveraged Loans 64% -23% Property Debt 39% 9% Renewable Energy Infrastructure 29% -30% Specialist Property 27% 12% Positive correlation Negative correlation Source: Morningstar Direct, Bloomberg. Period covered: 31.03.2012 31.03.2015. Note: 3 year correlation, monthly data. Past performance is not a guide to the future. The value of investments can go down as well as up and your client may not get back the amount they invested.

Asset-backed securities Asset leasing Specialist insurance Commodities Gold Ground rents Infrastructure Leveraged loans Property debt Renewable energy infrastructure Specialist property Timber equity FTSE AllSh TR GBP Barclays sterling agg TR GBP October roadshow #DefaqtoRetirement Degrees of diversification These same investments exhibit very low correlations to each other, potentially attractive use in combination. Time period: 30.06.2012 30.06.2015 Asset-backed securities 100% -1% 12% 16% 26% -23% 20% 47% 27% 22% -10% 13% 20% 2% Asset leasing -1% 100% -22% 27% 11% -2% 24% 48% 16% 4% 31% 16% 53% 0% Specialist insurance 12% -22% 100% 2% 29% -2% -5% 2% 29% 6% -25% 2% -12% 29% Commodities 16% 27% 2% 100% 47% 18% 43% 50% 32% 20% 29% 21% 43% 4% Gold 26% 11% 29% 47% 100% 2% 23% 20% 14% -2% 25% 20% 31% 38% Ground rents -23% -2% -2% 18% 2% 100% -16% 4% 31% 33% 22% 27% 19% -3% Infrastructure 20% 24% -5% 43% 23% -16% 100% 32% 2% -21% 21% 10% 26% 2% Leveraged loans 47% 48% 2% 50% 20% 4% 32% 100% 51% 26% 20% 37% 62% -6% Property debt 27% 16% 29% 32% 14% 31% 2% 51% 100% 29% 24% 49% 37% 29% Renewable energy infrastructure 22% 4% 6% 20% -2% 33% -21% 26% 29% 100% -5% 43% 33% -20% Specialist property -10% 31% -25% 29% 25% 22% 21% 20% 24% -5% 100% 37% 37% 15% Timber equity 13% 16% 2% 21% 20% 27% 10% 37% 49% 43% 37% 100% 58% 39% FTSE AllSh TR GBP 20% 53% -12% 43% 31% 19% 26% 62% 37% 33% 37% 58% 100% 13% Barclays sterling agg TR GBP 2% 0% 29% 4% 38% -3% 2% -6% 29% -20% 15% 39% 13% 100% Positive correlation Negative correlation Past performance is not a guide to the future. The value of investments can go down as well as up and your client may not get back the amount they invested. Source: Morningstar Direct & Bloomberg. Period cover: 30.06.2012 30.06.2015. Note: 3 year Correlation, monthly data.

Case study Asset leasing Airbus A380 Ownership and contracted lease of wide body aircraft. Low correlation Attractive annual income driven by lease payments from Emirates airline (a sovereign credit). Fully amortised plane then sold for residual value to shareholders. Attractive income Inflation sensitivity Past performance is not a guide to the future. The value of investments can go down as well as up and your client may not get back the amount they invested.

The Architas Diversified Global Income Fund Source: Architas. Assumes constant annual inflation rate of 3% and no interest return for simplicity. If you place your money on deposit with a bank or building society, interest rates may fluctuate but your original capital investment will remain constant.

Diversified sources of yield Potential income from multiple regions and asset classes UK Europe North America Asia Pacific Emerging markets Alternatives 0.16% Government bond Corporate bond Equity dividends 0.07% 0.14% 0.15% 0.15% 0.27% 0.49% 0.47% 0.33% 0.43% 0.52% 0.03% 0.02% 0.84% 0.36% 0.04% TOTAL 1.02% 0.90% 1.41% 0.55% 0.32% 1.21% Debt 0.18% 0.32% 0.23% 0.32% Gross yield: 5.41%* Source: Architas, as at 30 June 2015, excluding cash. *Estimated target yield calculated with internal models. Future yield values are not guaranteed

The Architas income range Unconstrained funds may generate more income Source: Architas, as at 30 June 2015 For illustrative purposes only. The Architas Diversified Global Income Fund, the Architas Diversified Real Assets Fund and the Architas MM Monthly High Income Fund are not currently risk profiled.

Learning outcomes An investment solution to tackle today s low yield environment: Potential income generation by using multiple asset classes P Access to a wide range of opportunities by investing globally Some of the best available managers accessed through an unfettered portfolio P P

Important information Issued by Architas Multi-Manager Limited, which is authorised and regulated by the Financial Conduct Authority. The value of investments and the income from them can fall as well as rise and is not guaranteed which means you could get back less than you invest. Past performance is not a guide to future performance. Investments in newer markets, smaller companies or single sectors offer the possibility of higher returns but may also involve a higher degree of risk. The value of investments can fall as well as rise purely on account of exchange rate fluctuations. You can invest in the funds mentioned in this presentation through a number of financial products. They are intended to be medium (at least 5 years) to long term (over 10 years) investments. Each fund except the Architas MM UK Equity Fund is permitted to invest over 35% of its assets in securities issued by a single local, national or supra national government. Each of these funds can invest entirely in units of collective investment schemes. If you require further information on any of our funds, the Key Investor Information document (KIID) and the prospectus are both available free of charge on request from Architas Multi-Manager Limited. The KIID is designed to help investors to make an informed decision before investing. You can view or download all our funds KIIDs via our website at www.architas-mm.com, in the Library section. Please note that you will need to select your country, client category and accept the terms of use the first time you visit the site. This document does not constitute an offer to sell or buy any share in the Fund. Information relating to investments is based on research and analysis undertaken or procured by Architas Multi-Manager Limited for its own purposes and may have been made available to other members of the AXA Group of Companies which, in turn, may have acted on it. Whilst every care is taken over these comments, no responsibility is accepted for errors and omissions that may be contained therein. It is therefore not to be taken as a recommendation to enter into any investment transactions. AXA is a worldwide leader in financial protection and wealth management. In the UK, one of the AXA companies is Architas Multi-Manager Limited, an investment company that provides access to other investment managers services through a range of multi-manager solutions, including regulated collective investment schemes. Architas Multi-Manager Limited is a company limited by shares and authorised and regulated by the Financial Services Authority. It is registered in England: No. 06458717. Registered Office: 5 Old Broad Street, London, EC2N 1AD. As part of our commitment to quality service and security, telephone calls may be recorded.

Break Sponsors: @DefaqtoAdviser #DefaqtoRetirement

Income Outcomes Martin Green Business Development Manager Prudential

This presentation is for adviser use only, and contains some forward thinking statements which should not be taken as fact. Information given is based on our current understanding, as at September 2015, of current taxation, legislation and HMRC practice, all of which are liable to change and subject to an individual s own circumstances. Terms and conditions of products are available on request. The level of charges may change in the future. For webex presentations, the event may be recorded for training purposes. No reproduction, copy, transmission or amendment of this presentation may be made without the written permission from Prudential. PAC & Prudential Retirement Income Limited (PRIL) - Prudential" is a trading name of The Prudential Assurance Company Limited and of Prudential Retirement Income Limited. This name is also used by other companies within the Prudential Group. The Prudential Assurance Company Limited is registered in England and Wales. Registered office at Laurence Pountney Hill, London EC4R 0HH. Registered number 15454. Prudential Retirement Income Limited is registered in Scotland. Registered office at Craigforth, Stirling FK9 4UE. Registered number SCO47842. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority Any examples included are designed to represent a typical situation and not related to any particular individual.

Learning outcomes Understand the challenges and risks faced by an individual investor who is either moving from accumulation to decumulation or looking to support a sustainable income Understand how smoothed investment solutions can offer a compelling middle ground

Prologue In life, one sometimes makes bad deals Mme. Jeanne Calment

Longevity Risk Market Risk Inflation Risk Spending Risk - Investment volatility - Interest rate volatility - Sequence of returns - Gov t policies and tax - Purchasing power - Erosion of income - Health and LTC - Family - Divorce - Fraud/theft

2015 BPF (Before Pension Freedom) I want the best annuity rate I want to use a financially strong provider Interest rates rise? Could I have done better? Client Where the provider invests is not my problem Solvency II, it s not my problem If I live too long, it s not my problem

2015 APF The client wants the best income they can get I want to use a financially strong provider Interest rates rises, equity markets, inflation Adviser Where the client invests is my problem Natural income, total return, volatility drag, sequencing? How do I know how long the client will live?

Reduce Annuity Products Retain Risk Transfer Safe Withdrawal Rates Avoid

What really matters? All decumulation strategies can actually be managed in a way which is either safe or risky The real differentiator is likely to be whether market risk is retained or transferred If retained, how are those risks managed by the individual? If transferred, how are those risks managed by the provider?

Definition of income Interest Dividends INCOME? Equity Income Savings Income Capital Growth Capital

Naturally occurring Income through investments Generate capital growth Encashment

The balancing act Risk required Capacity for risk Attitude to risk

The volatility of asset classes The graph shows the total returns for various market indices from 31 August 2005 to 31 August 2015. Source: FE Analytics.

Bottom performing sector Top performing sector October roadshow #DefaqtoRetirement 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Global Emg Markets Japan Property Asia Pac ex Japan UK Gilts UK Sm Companies Global Emg Markets Money Market Asia Pac ex Japan Europe ex UK Europe ex UK Japan Europe ex UK Asia Pac ex Japan Global Stg Corp Bonds Global UK All Companies UK Sm Companies North America Global Emg Markets UK All Companies Global Emg Markets Asia Pac ex Japan UK Sm Companies UK All Companies North America North America Global UK Sm Companies Global Emg Markets UK Gilts UK Sm Companies UK Sm Companies North America Stg Corp Bonds Europe ex UK North America UK Gilts Asia Pac ex Japan Money Market Asia Pac ex UK Japan UK All Companies Money Market Global Europe ex UK North America Global UK Gilts Europe ex UK North America Global Money Market UK All Companies Property Stg Corp Bond Stg Corp Bonds UK Gilts UK Gilts UK Sm Companies Stg Corp Bonds North America Japan Money Market Japan Property North America UK All Companies UK All Companies Europe ex UK Property Stg Corp Bonds Property Stg Corp Bonds Japan Asia Pac ex Japan UK All Companies UK Sm Companies Global Emg Markets Property Global Property Property Property Property Global Global Asia Pac ex Japan UK All Companies Global Global Emg Markets UK All Companies Stg Corp Bond Europe ex UK Japan North America Stg Corp Bonds Japan Asia Pac ex Japan Money Market Stg Corp Bond Europe ex UK Japan Money Market Money Market Global Emg Markets UK Sm Companies UK Gilts UK Gilts Asia Pac ex Japan UK Gilts Japan Money Market Global Emg Markets Money Market Global Emg Markets UK Gilts Europe ex UK UK Sm Companies Source: Financial Express, January 2015. Total Return discrete calendar year performance table for selected sectors from Investment Association universe.

October October roadshow roadshow #DefaqtoRetirement The sequence of returns A B Year 1 25% Year 1-5% Year 2 5% Year 2-20% Year 3 20% Year 3-15% Year 4-15% Year 4 20% Year 5-20% Year 5 5% Year 6-5% Year 6 25% C Year 1 25% Year 2-5% Year 3 5% Year 4-20% Year 5 20% Year 6-15% D Which would you pick? They are all the same, have the same volatility and produce the same overall return of 1.75% Important note: These examples are for illustrative purposes only they are not representative of any particular time period or investment performance. The sole aim is to explain how the sequence of returns works.

October October roadshow roadshow #DefaqtoRetirement The sequence of returns A B Year 1 25% Year 1-5% Year 2 5% Year 2-20% Year 3 20% Year 3-15% Year 4-15% Year 4 20% Year 5-20% Year 5 5% Year 6-5% Year 6 25% C Year 1 25% Year 2-5% Year 3 5% Year 4-20% Year 5 20% Year 6-15% Using a withdrawal at the end of each year, say 5% of original investment, the amount remaining after 6 years as a percentage of the original investment is: A 77.02% B 64.01% C 74.96% Important note: These examples are for illustrative purposes only they are not representative of any particular time period or investment performance. The sole aim is to explain how the sequence of returns works.

The sequence of returns The sequence of returns only matters when withdrawals are involved However, the emotional impact of negative returns early on can be damaging Hindsight bias and short term bias mean we battle internally over short term rewards vs long term goals How to balance attitude to risk, capacity for loss and the requirement to take risk?

In fiction: we find the predictable boring. In real life: we find the unpredictable terrifying. Mokokoma Mokhonoana, Philosopher

What are your clients looking for? With-Profits Multi asset investing to spread risk Smoothing to help avoid some of the short term peaks and troughs of typical unit linked investments Potential growth

Traditional With-Profits Basic sum assured based on investment amount Regular bonus payable annually Smoothing applied by holding back on regular bonus payable Final bonus payable at maturity/encashment to reflect asset share MVRs

Traditional With-Profits Basic sum assured based on investment amount Regular bonus payable annually Smoothing applied by holding back on regular bonus payable Final bonus payable at maturity/encashment to reflect asset share MVRs Modern smoothed Fund Unitised fund with daily unit price Daily increase in unit price in line with Expected Growth Rate (EGR) Smoothing applied daily through mathematical formula Unit Price Adjustments (UPAs) can be made quarterly to reflect asset share n/a

Volatility drag Loss Gain required to get back to parity 5% 5.26% 10% 11.11% 15% 17.65% 20% 25.00% 25% 33.33% Average return = (-20% + 25%)/2 = 2.5% Actual return = 0% 30% 42.86% 35% 53.85% 40% 66.67% Average return = (-50% + 100%)/2 = 25% Actual return = 0% 45% 81.82% 50% 100.00%

Volatility drag IA Sector Mixed Investment 0%-35% Shares Mixed Investment 20%-60% Shares Mixed Investment 40%-85% Shares Average annual return % Actual annualised return % Difference 3.30 3.25 1.48% 3.93 3.84 2.26% 5.23 5.06 3.33% Flexible Investment 5.20 4.97 4.25% Global Emerging Markets 7.42 6.56 11.58% Source: FE Analytics and Prudential. Data is based on discrete annual returns for relevant sectors over 10 years from IA Universe. Periods are to 31 st August commencing 31 st August 2005. Average return is arithmetic average of discrete performance for discrete periods. Actual return is annualised return over full 10 year period. Volatility drag is difference between average and actual rate of return.

Expected growth rates in cash flow models

PruFund 0-30 ISA Fund 6.40% PruFund 10-40 ISA Fund 6.90% PruFund 20-55 ISA Fund 7.10% PruFund 40-80 ISA Fund 7.40% PruFund Cautious ISA Fund 6.70% PruFund Growth ISA Fund 7.30% The above EGRs apply from 25 August 2015 and are gross of product charges.

Jack and Jill a reminder Jack aged 60 and Jill aged 60. Balanced investors in good health Objectives: Escalating income Death benefits Sustainable income for life Replace car in 3 years Retain flexibility Important note: This example represents a typical situation that is not related to any particular individual. It does not recommend that particular course of action

Starting income 13,000 pa State Pension Assumptions: Flexible Retirement Plan, Expected Return 6.5% pa, 1% Product/Fund Charge, 2% Initial Adviser Charge, 0.5% Ongoing Adviser Charge.

Jack and Jill a reminder Jack aged 60 and Jill aged 60. Balanced investors in good health Objectives: Escalating income Death benefits Sustainable income for life Replace car in 3 years Retain flexibility

PruFund performance Gross Return Bid-Bid line chart since 25 Nov 2008 from UK ABI Pensions universe. Pricing Spread: Bid-Bid Initial Investment: 100000.00 Data Frequency: Monthly Withdrawals Date: Last Day of the Month Withdrawals Amount: 0.43% Monthly Currency: Pounds Sterling. Source: FE Analytics. Investments can go down as well as up.

Learning outcomes Understand the challenges and risks faced by an individual investor who is either moving from accumulation to decumulation or looking to support a sustainable income Understand how smoothed investment solutions can offer a compelling middle ground

Thank you for your time If you would like to give us feedback directly or request information not covered elsewhere please e mail us at speakernotes@prudential.co.uk

Absolute income in uncertain markets Aviva Investors October 2015 This document is for investment professionals only. It is not to be distributed to or relied on by retail clients.

Learning objective Understand impact of volatility on returns Understand changes in correlation and diversification over time Examine how non-traditional risk factors can diversify portfolio risk

Shared challenges

Meeting the income needs of today s investors Findings 4% is the new 5% Risk aversion amongst investors Concerns about value of pension savings Concerns about sustainability of income Leaving pension pots untouched Source: Aviva Investors, Gabriel Research & Management Meeting the needs of today s investors September 2015

When it goes wrong

Impact of volatility 44% drawdown requires 79% recovery FTSE All Share (price return in GBP) -44.1% +78.8% Source: Bloomberg as at 25 September 2015. Past performance is not a guide to the future

Challenges ahead

Central bank action Keeping base rates low Source: Bloomberg as at 25 September 2015. Past performance is not a guide to the future

Central bank action Expanding balance sheets Source: Bloomberg as at 25 September 2015. Past performance is not a guide to the future

Risk-Return expectations Looking at the cross-section of long-term sustainable return and risk assumptions * EM Equities * Sustainable returns are calculated assuming local returns Source: Thomson Reuters Lipper and Aviva Investors, data as at 30 June 2015. Past performance is not a guide to the future.

Diversified portfolios Equities as return seeking assets FTSE All Share (price return in GBP) Source: Bloomberg as at 25 September 2015. Past performance is not a guide to the future

Diversified portfolios Fixed income as protective assets UK generic government 10yr yield (%) Source: Bloomberg as at 25 September 2015. Past performance is not a guide to the future

Evolution of correlation pre and post 2008 Headwind to the efficient frontier Pre 2008 Japan Equities EM Equities +1 0 US Investment Grade European High Yield European Equities US Equities -1 US High Yield EM Debt (USD) CMBS ABS/Securitized Source: Aviva Investors, Bloomberg as at 30 November 2014. Pre 2008 : 1 Jan 1998 to 31 Dec 2007. Post 2008 : 1 Jan 2008 to 30 Nov 2014

Evolution of correlation pre and post 2008 Headwind to the efficient frontier Pre 2008 Post 2008 Japan Equities EM Equities +1 0 US Investment Grade European High Yield European Equities US Equities -1 US High Yield EM Debt (USD) CMBS ABS/Securitized Source: Aviva Investors, Bloomberg as at 30 November 2014. Pre 2008 : 1 Jan 1998 to 31 Dec 2007. Post 2008 : 1 Jan 2008 to 30 Nov 2014

Impact of higher correlation Return seeking portfolio % 9 8 7 6 5 4 3 2 1 0 1 month VaR breakdown at 99% confidence level Source: Aviva Investors, as at 31 July 2015. The data shown are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Potential returns are based on a number of assumptions, may not be realised and are subject to risk.

Impact of higher correlation Diversification seeking portfolio % 9 8 7 6 5 4 3 2 1 0 1 month VaR breakdown at 99% confidence level Source: Aviva Investors, as at 31 July 2015. The data shown are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Potential returns are based on a number of assumptions, may not be realised and are subject to risk.

Income generation for today s investor

Creativity Natural, predictable, sustainable and smooth income Income

Creativity Natural, predictable, sustainable and smooth income Yield x Capital = Income

Creativity Natural, predictable, sustainable and smooth income Diverse income Equity Dividends Government bonds Coupons Corporate bonds Coupons REITS Rental income Option Premia Yield x Capital = Income

Creativity Natural, predictable, sustainable and smooth income Diverse protection Equities Credit Duration Inflation Currency Volatility Yield x Capital = Income

Annualised volatility % October roadshow #DefaqtoRetirement Risk-reducing strategies Volatility in cyclical markets to rise relative to defensive markets 45% 40% 35% 30% 25% 20% 15% 10% 5% Historical annualised 52 week volatility: Korea (Kospi 200) v US (S&P 500) S&P 500 Kospi 200 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: Bloomberg. This information is for illustrative purposes only. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Data as of 31 January 2015.

Absolute Income

Construction historic timeframe Long term quantitative worldview of global economic and market linkages 1-month annualised portfolio volatility breakdown 10-year risk of global equities 2-year risk of global equities 16% 14% 12% 10% 8% 6% 4% 2% 0% Undiversified risk Portfolio risk Source: Aviva Investors, as at 31 August 2015. The data shown are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Potential returns are based on a number of assumptions, may not be realised and are subject to risk. Horizontal lines of Global equities represent annualised daily standard deviation of MSCI All Country World index capital returns in GBP terms.

Construction historic timeframe Long term quantitative worldview of global economic and market linkages 1-month annualised portfolio volatility breakdown 16% 14% 12% 10% 8% 6% 4% 2% 0% Undiversified risk Portfolio risk Source: Aviva Investors, as at 31 August 2015. The data shown are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Potential returns are based on a number of assumptions, may not be realised and are subject to risk. Horizontal lines of Global equities represent annualised daily standard deviation of MSCI All Country World index capital returns in GBP terms.

Understanding the needs of our clients Building solutions that respond to these needs Our clients Our clients include wealth managers, financial institutions, wholesale and retail banks, pension funds, individual and institutional investors. Outcome drivers Capital Growth Sustainable Income Beating Inflation Aviva Investors Multi-Strategy (AIMS) range AIMS Target Return AIMS Target Income Performance objective: - Income of Cash + 4% 1 before corporation tax - Capital preservation Volatility objective: less than 50% of the volatility of global equities 2 AIMS Target Inflation 3 Aviva Investors is well positioned to respond to these needs by building solutions and componentry that cater to real investment needs, both now and in the future 1 The income is an annual target measured from 1st April to 31st March each year. Income on the Fund will be paid monthly. Charges are deducted from capital. 2 Objective annualised on a rolling 3 year basis and the volatility target as benchmarked against MSCI All Country World Index. 3 Launch date to be announced, structure and terms are subject to change and pending regulatory approval. This table is provided for discussion purposes only. Source: Aviva Investors as at 31 August 2015. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.

Summary Understand impact of volatility on returns 20% loss has to be followed by 25% gain to get back to par Understand changes in correlation and diversification over time Correlation has increased since 2008, with consequent challenges for portfolio construction Examine how non-traditional risk factors can diversify portfolio risk Role of volatility, inflation and currency in achieving diversification Capital preservation is fundamental to delivering absolute income

Important information This document is for investment professionals only. It is not to be distributed or relied on by retail clients. Except where stated as otherwise, the source of all information is Aviva Investors as at 30 September 2015. Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as personalised advice or a recommendation of any nature. Past Performance is not a guide to the future. The value of an investment in the fund and any income from it may go down as well as up and investors may not get back all or any of the original amounts invested. FTSE International Limited ( FTSE ) FTSE 2015. FTSE is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE data is permitted without FTSE s express written consent. This product is not in any way sponsored, endorsed or promoted by any relevant stock market, relevant indices, related exchange or index and they do not accept any liability in relation to its issue, operation and trading For more information on our range of funds available please contact our Relationship Management Team on 0800 0154773* or email them on fundandsalessupport@avivainvestors.com or visit our website www.avivainvestors.com Issued by Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: No 1. Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.com Approved for use in United Kingdom Only. CI063543 09/2015

Q & A Session Sponsors: @DefaqtoAdviser #DefaqtoRetirement

Lunch Sponsors: @DefaqtoAdviser #DefaqtoRetirement

Making it personal, making it last Roger Perry Head of Intermediary Sales Defaqto

The number of income drawdown contracts sold increased from 6,700 in Q1 2014 to 11,500 in Q1 2015 The number of annuities sold reduced from 74,100 in Q1 2014 to 20,600 in Q1 2015 UP 64% DOWN 72%

Agenda Income issues Case studies Defaqto support

FCA Guidance FCA Market Study 14/1-3 Retirement income market study and final guidance papers provide details of the guidance advisers should follow when providing retirement advice FCA factsheet 025 Pension reforms and insistent client clarification FCA policy statement 15/12 Details changes to pension transfer rules, including conversions of existing plans, crystallising events and adviser permissions

Income/withdrawal shape

Risk October roadshow #DefaqtoRetirement Solution landscape Care costs Other costs Lifestyle costs Living costs

Helping retirees avoid financial worry

Case study 1 retiring on a budget

Customer profile Age 60 now Low risk Low financial awareness Poor health Seeks advice from family and friends Trust the bank Assets are mainly home and savings Need to plan carefully

Solution Lifestyle costs Living costs

Case study 2 the early retiree

Customer profile Age 55 now Has Defined Benefit Scheme paying High risk Financially aware Has savings and investments Wants to enjoy life

Solution landscape I Other costs Lifestyle costs Living costs

Solution landscape II Other costs Lifestyle costs Living costs

Case study 3 the later retiree

Customer profile Age 65 now Wants to continue to work part time Wants to take state pension Medium risk Financially aware Has savings and investments

Solution landscape I Lifestyle costs Living costs

Solution landscape II Lifestyle costs Living costs

Other Income Equity release Downsize home Rental income Second home Inheritance Dividend Income

Defaqto support

Defaqto Engage

Invested income solutions

Identifying income solutions

Additional research Filter by Yield Sort by Yield Filter by Performance Identify Dividend Frequency

Fund Family Diamond Rating and research

Summary Income issues Case studies Defaqto support

Questions

Closing remarks Sponsors: @DefaqtoAdviser #DefaqtoRetirement