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The Retirement Review
Citation preview
www.partnership.co.uk
Click to edit Master subtitle styleBankhall
November 2009
Martin Lines
Retirement Technical Manager
The Retirement Review
www.partnership.co.uk
The Retirement Review
www.partnership.co.uk
Agenda
• Minority Report?
• The Retirement Review
• Phased by the options?
www.partnership.co.uk
Agenda
• Minority Report?
• The Retirement Review
• Phased by the options?
www.partnership.co.uk
Market size
USP
£1.7bn
Variable £0.4bn’
Investment-linked’ £1.2bn
Annuity
£14.7bn
Watson Wyatt In Retirement Study – predictions for 2009
Impaired Annuity£1.9bn
www.partnership.co.uk
Treating Customers Fairly
• TCF outcome 4:
– “Where consumers receive advice, the advice is suitable and takes account of their circumstances”.
– Estimated % of individuals who could benefit from enhanced / impaired annuities?
40%
www.partnership.co.uk
IFA Experience
Mick Bradley, Retirement solutions Ltd, a member of Bankhall.
"Retirement Solutions are able to achieve over 45% qualification for enhanced annuities from our clients because we assume that they will qualify and that
we question and probe to identify whether this is the case”.
www.partnership.co.uk
Agenda
• Minority Report?
• The Retirement Review
• Phased by the options?
www.partnership.co.uk
Ageing ‘retired’ population!
• Income Drawdown / USP is 14 years old!
• Personal Pension Phasing is 21 years old!
www.partnership.co.uk
Many are already ‘in’ retirement!
Source: National Statistics Online. By Age, April 2001, England and Wales
• Dark blue and ‘blank’ are potential Partnership clients.
• What strategy do you have in place to ensure your business supports these people’s needs?
www.partnership.co.uk
Client Reviews
State Pension
Inflation
Health
Marital Status
Long-term care
Moving homeFamily
responsibilities
Legislation
Inheritance
Critical YieldChanges to GAD rates
Fund Performance
Product development
www.partnership.co.uk
USP – example 1 - Lucy
• Lucy commenced USP at age 52
• Initial Fund value £230,000
• Current fund value is £200,000
• Lucy suffers from a serious illness
• Lucy is a smoker
• Has non-pension income producing assets
• Looking to maximise income from pension
*Mycosis Fungoides
www.partnership.co.uk
Playing your cards right?
Option One Option Two Option three Option four
Max GAD Drawdown
100% GAD Drawdown
Standard annuity PA Smokers rate annuity
£13,680*** £11,400*** £12,216* £13,028**
The highest starting income. Not guaranteed. Max GAD may not be sustainable in the long term. Positive for death benefits and investment flexibility.
Sometimes considered as more sustainable in the medium term. Positive for death benefits.
Guaranteed for as long as Lucy lives. Mortality cross subsidy built into rate. No investment risk.
Guaranteed for as long as Lucy lives. Mortality cross subsidy built into rate. No investment risk. Can build in ‘Value Protection’ to create ‘drawdown like’ death benefits.
* Source: SharingPensions.co.uk. 29 August 2009 ** The Exchange. Partnership rate. 3 September 2009*** Source: invidion.co.uk. 3 September 2009. All figures are for illustration purposes only.
www.partnership.co.uk
Enhanced Annuity Case Study
An enhanced Annuity via Partnership would provide:
£14,752 per annum
• Fig with Value Protection?
Partnership enhanced rate 3/9/09
www.partnership.co.uk
Put another way...
• This is the equivalent of uplifting Lucy’s USP fund from £200,000 to...
• £241,518
An extra £41,518!
• How long would it take for 20% fund growth while taking an income?
www.partnership.co.uk
Example 2 - Bob
• Bob, aged 65 is a smoker
• In May 2006, he took full PCLS from his pension
• He did not need an income
• He has a USP arrangement worth £100,000
• His annual review is about to take place
www.partnership.co.uk
Should Bob continue to defer or take an income?
• Markets start to recover lost ground
• Interest rates or bond yields go up giving better annuity rates
• How long will this take?
• How much annuity income will your client lose?
www.partnership.co.uk
Impact of deferring - £100,000 fund value
Based on:A male smoker £100,000 fund after tax-free cash with 100% ‘Value Protection’Partnership Enhanced Annuity rates as at 30th September 2009
Fund Value at 65 £100,000Annuity available £6,888 pa
Projected fund at 66 £106,000Annuity available £7,512
BUT would take 12 years to recover ‘lost’ income!
www.partnership.co.uk
But what about death benefits?
• Bob in USP to take advantage of death benefits
• Now wants highest ‘sustainable’ guaranteed income for life
• But can he retain death benefits?
www.partnership.co.uk
Look Familiar? Lump sum death benefits year 1
USP
£100,000
£100,000 - £6,800* less 35% tax
= £60,580
Value Protected Enhanced Annuity
£100,000
£100,000 - £6,888 less 35% tax
= £60,522
*based on 100% GAD rate 14/8/09
www.partnership.co.uk
Use of income stream
Value Protected Annuity
65% death benefit (less payments received)
Personal Pension Plan
100% death benefit
25% PCLS
Personal Pension Plan
For 3rd Party
www.partnership.co.uk
Agenda
• Minority Report?
• The Retirement Review
• Phased by the options?
www.partnership.co.uk
Example - Phased
• Objective - to leave as much money ‘uncrystallised’ as possible whilst still receiving a targeted income.
– Maximise net income from ‘segments’ used
– Retain death benefits on ‘uncrystallised’ funds
www.partnership.co.uk
Tax efficiency
PCLS
Annuity
More reliance on annuity as client gets older
Tax may be subject to change in the future and depends on individual circumstances.
www.partnership.co.uk
Tax efficiency
PCLS
Annuity
More reliance on annuity as client gets older
Tax may be subject to change in the future and depends on individual circumstances.
www.partnership.co.uk
Example
• Frank starts phasing benefits into annuities from age 60
• He targets an income of £6,000
• On the 4th annual review, it transpires that the client has contracted serious illness.
• By year 4 he still has an uncrystallised fund of £117,008
• Maintaining level of income still important
• Wants to maximise death benefits
• Could now qualify for enhanced annuity
Based on an initial fund value of £150,000 growth rate 6% on uncrystallised funds
www.partnership.co.uk
Example – year 4 (age 63)
Existing income
New ‘income’required
Client needs approximately £6,000 pa
Value of ‘segments’ crystallised £13,437
£3,359PCLS
£2,100 net
Standard annuity rate 6.7%
£5,999Annuity shown net of 20% tax
£540 net
Based on an initial fund value of £150,000 growth rate 6% on uncrystallised funds
www.partnership.co.uk
Existing income
New ‘income’required
£3,231PCLS
£2,100 net
£668 net
£5,999
Client needs approximately £6,000 pa
Value of ‘segments’ crystallised £12,926
Annuity shown net of 20% tax
Because Frank qualifies for a higher annuity rate, an additional £511 remains ‘uncrystallised’
Example – year 4 (age 63)
Based on an initial fund value of £150,000 growth rate 6% on uncrystallised funds
www.partnership.co.uk
Uncrystallised fund at age 70 using standard rates from year 4
£89,749
Uncrystallised fund at age 70 using enhanced rates from year 4
£99,254
The cumulative effect from year 4
Based on an initial fund value of £150,000 growth rate 6% on uncrystallised funds
www.partnership.co.uk
Uncrystallised fund at age 70 using enhanced rates from outset
£110,462
If he qualified from outset..
Uncrystallised fund at age 70 using standard rates from year 4
£89,749
Based on an initial fund value of £150,000 growth rate 6% on uncrystallised funds
www.partnership.co.uk
Why use enhanced annuity with phasing
• More income available from each ‘segment’
• Fewer segments crystallised
• Retains more of 100% ROF
• Could opt for value protection allows for 65% ROF on new ‘crystallised’ funds
www.partnership.co.uk
The two minute change to your process - ‘At’ or ‘In’ retirement
Simply ask your clients three questions:
Do you smoke?
Are you currently taking prescribed medicine?
Have you ever been hospitalised due to a serious medical condition?
www.partnership.co.uk
IFA Experience
Mick Bradley, Retirement solutions Ltd.
" The common quotation form really helps and enables us to provide higher income to our clients and higher income to ourselves, an opportunity to maximise our income whilst being compliant and observing TCF -
a win - win situation”.
www.partnership.co.uk
Name: Martin Lines
Retirement Technical Manager
Partnership is a trading style of The Partnership Group of Companies, which includes: Partnership Life Assurance Company Limited (registered in England and Wales No. 05465261), and Partnership Home Loans Limited (registered in England and Wales No. 05108846).
Both companies are authorised and regulated by the Financial Services Authority. The registered office for both companies is Sackville House, 143-149 Fenchurch Street, London EC3M 6BN.
Thank you