2015 wpl may 2015 260515
TRANSCRIPT
H E A L T H W E A L T H C A R E E R
N A V I G A T I N G T H E
M A Z E T O F R E E D O M
M E R C E R L I M I T E D
May 2015
Presenter: Mark Rowlands
PENSIONS PEOPLE VALUE FROM MERCER
F R E E D O M
Video clip(s)
PENSIONS PEOPLE VALUE FROM MERCER
A N E R A O F C H A N G E
PENSIONS PEOPLE VALUE FROM MERCER
AGE Driven by the employee 20
O N C E L I F E W A S S I M P L E
AGE Scheme NRA 60/65 20
Income
Income
THEN
NOW
PENSIONS PEOPLE VALUE FROM MERCER
P U T Y O U R S E L F I N T H E M E M B E R S ’ S H O E S
PENSIONS PEOPLE VALUE FROM MERCER
W H A T W I L L F R E E D O M M E A N ?
Free to use your cash as you want?
Free to make poor decisions?
Free to be abused by professional criminals?
Free to be overcharged?
PENSIONS PEOPLE VALUE FROM MERCER
S O C I A L D E M O G R A P H I C C H A N G E S A N D C H A L L E N G E S
How do we ensure effective design and education to support this process?
..increase in state
pensioners by
2030
50%
..of employers think they will see
greater demand for better benefit
provision
(Sources: Economist Intelligence unit and ONS)
43%
Increased Life Expectancy
81
86
85
89
MEN WOMEN
EMPLOYEE
EMPLOYEE STATE
PENSIONS PEOPLE VALUE FROM MERCER
W O R K F O R C E C H A N G E S A N D C H A L L E N G E S
How do we finance a longer retirement over a shorter period? What
has to change?
How will employers hold on
to people they need and exit
those they don’t?
How can we best support and help employers manage debt and stress?
Working people of State Pension age
and above (UK)
Reversal of working patterns
Cost of financial stress
(Source: StepChange Debt charity) (Source: ONS)
YE
AR
S
1950s 2000s
WORK
RETIRE
45
24
50
10 753,000
1.4 million
in 1993
in 2011
£2.3 billion
2.9 million people
PENSIONS PEOPLE VALUE FROM MERCER
P O L I T I C A L C H A N G E S A N D C H A L L E N G E S P E N S I O N S P O L I C Y O F T H E G O V E R N M E N T ?
More of the same? • Freedom • Choice • Empowerment Pension pledges (light in their manifesto) include: • Continuing to increase the state pension through the triple lock system (higher
of inflation, prices, or 2.5%) • Introducing a single-tier pension
PENSIONS PEOPLE VALUE FROM MERCER
U N D E R S T A N D Y O U R M E M B E R S H I P
50% of annuitants are taking their benefits at the selected retirement age.
1 in 6 retirees has an outstanding mortgage of more than £25,000
1 in 4 annuitants remains in employment
Source: Nationwide Building Society, Insurance Company Data
PENSIONS PEOPLE VALUE FROM MERCER
F R E E D O M A N D C H O I C E : W H A T H A V E W E S E E N S O F A R ?
• On 7th April Zurich took 677 calls, approximately 3 times their usual call flow;
• On 7th April Aegon saw an increase of just over 3,000 calls received compared to the first
day of the tax year in 2014;
• Call volumes were up 42% from 31 March 2015 with 40% of calls being for valuations and
quotes;
• NEST, because of its population, expect lots of people taking cash… but for larger pots
do not expect much annuity purchase;
• Dramatic increase in request for DB Transfers – cash is king!
26 May 2015
PENSIONS PEOPLE VALUE FROM MERCER
S P E N D I N G T H E S A V I N G S F U N D ?
26 May 2015
PENSIONS PEOPLE VALUE FROM MERCER
R E T I R E M E N T I N C O M E F R A M E W O R K D E F I N I N G T H E P R I N C I P L E S
• We WANT to give members what they NEED…
an adequate and sustainable income in retirement.
• But we also NEED to give them what they WANT…
comfort their money will last, minimal negative returns, flexibility.
• As such the foundations of the framework are based on the following:
The risk of income shortfall i.e. not having ‘enough’
The risk your money runs out before you do
The risk of severe negative returns
Adequacy
Sustainability
Member Behaviour
PENSIONS PEOPLE VALUE FROM MERCER
I N R E T I R E M E N T : S O U R C E S O F I N C O M E
Use a flexible combination of these…
...to finance varying levels of income and capital needs in later life
Flexibility to draw income or capital from retirement
arrangements
Income or capital from savings and other
sources (e.g. property)
State Pension
Continuing salary from one or more
employments A
ctu
al
Sp
en
din
g r
eq
uir
em
en
ts
Age
INCOME FLOOR
Active Retiree
Sedate Retiree
Frail Retiree
PENSIONS PEOPLE VALUE FROM MERCER
“Savings” phase
“Pre-retirement” phase
Retirement destination
M E R C E R F R A M E W O R K T O P R O T E C T M E M B E R S
In-retirement
INCOME IN-RETIREMENT
Cash
Variable income
Secured income
CRITICAL ENGAGEMENT
PHASE
Do it for me
Help me do it
Do it myself
TM
PENSIONS PEOPLE VALUE FROM MERCER
0%
20%
40%
60%
80%
100%
10 9 8 7 6 5 4 3 2 1 0
Years to Target Retirement Age
Equity (%)
DGF (%)
Annuity ProtectionFund (%)
0%
20%
40%
60%
80%
100%
10 9 8 7 6 5 4 3 2 1 0
Years to Target Retirement Age
Equity (%)
DGF (%)
InvestmentGrade Credit (%)Cash (%)
Annuity
Income drawdown Cash
0%
20%
40%
60%
80%
100%
10 9 8 7 6 5 4 3 2 1 0
Years to Target Retirement Age
Equity (%)
DGF (%)
DiversifiedRetirement Fund (%)
Cash (%)
U S I N G T A R G E T R E T I R E M E N T F U N D S ( T R F ) T O
E A C H D E S T I N A T I O N
PENSIONS PEOPLE VALUE FROM MERCER
S M A R T P A T H ™ - D C F R A M E W O R K F O R A L L Y O U R M E M B E R S
PLANNING EXECUTION
SPENDING
Harry needs to “save more!”
Sade needs to “Choose a destination”
Brian needs to “Select optimum vehicle”
Dame Vera needs to “Take advice”
£ Growth fund
Cash
Variable income
Secured income
Critical engagement phase
Spending in retirement
ST
RA
TE
GY
AN
D
PR
OD
UC
T S
ET
E
NG
AG
EM
EN
T A
ND
C
OM
MU
NIC
AT
ION
S
PENSIONS PEOPLE VALUE FROM MERCER
R U N N I N G A P E N S I O N S C H E M E I S
G E T T I N G H A R D E R
IMPLEMENTING SOLUTIONS DECISION – ADVISORY OR DELEGATED?
PENSIONS PEOPLE VALUE FROM MERCER
T H E R E S U R G E N C E O F M A S T E R T R U S T S
Originated
in 1950’s
NEST & People’s Pension
AE Oct 2012 driven
demand
Reports say there are
around 100 but reality c50
Strategic solutions for
deferred populations
and thru-retirement services
Increase in regulation
and legislation
due to poor governance
(DC)
Total delegation
removes governance and reduces
costs
Mercer’s framework has 124
clients / £6b assets
“1 in 4 DC members will be in a Master Trust by 2024” - Professional Pensions (Jan 2015)
PENSIONS PEOPLE VALUE FROM MERCER
T H E M E R C E R M A S T E R T R U S T F R A M E W O R K A N E X A M P L E – O T H E R V E R S I O N S A R E A V A I L A B L E !
INDEPENDENT
TRUSTEE
MERCER GOVERNANCE & OVERSIGHT
Employer
1
Employer
2
YOUR
EMPLOYER Employer
3
Employer
4
INVESTMENT ADVISER
TO TRUSTEE
Each employer’s arrangement is a separate section within the Master Trust.
PENSIONS PEOPLE VALUE FROM MERCER
D E L I V E R I N G A N E F F I C I E N T S C H E M E A N D G O O D O U T C O M E S : A D V I S O R Y O R M A S T E R T R U S T ?
26 May 2015
Expertise
Time Needs of members
Advisory Full
PENSIONS PEOPLE VALUE FROM MERCER
A N E R A O F C H A N G E
Agree
your
strategic
approach
Purpose of the scheme
Interaction with wider people and benefit strategy
Help and protect members from Freedom abusers
Choose how to implement based on your requirements
26 May 2015
PENSIONS PEOPLE VALUE FROM MERCER 22