just retirement – strictly confidential 1 a better income from retirement planning peter cantrell...
TRANSCRIPT
Just Retirement – Strictly Confidential1
A Better Income from
Retirement Planning
Peter Cantrell
Business Development Manager
Just Retirement – Strictly Confidential2
Today we will discuss
The opportunity
Open Market Option - update
Options, risks and considerations at retirement
Profitable Advice
Grasping the opportunity
Just Retirement – Strictly Confidential3
Handset Question 1
In the 5 year period between 2007 and 2012, the value of the “at retirement” market is forecast to have:
1. Decreased by 5%
2. Increased by 10%
3. Increased by 40%
4. Increased by 100%
Just Retirement – Strictly Confidential4
0
10
20
30
40
50
60
Year
£b
Source Watsons In Retirement Survey 2008
Value of the At Retirement Market
Just Retirement – Strictly Confidential5
1978
2002
2007
Introduction of OMO
FSA Regulation
Treasury Review
All retireesOMO %60%
30 years of progress?
Just Retirement – Strictly Confidential6
Pre Budget Report – October 2007
Annual Report
onOMO
ClarifyTax
rules
Review of Wake up
Packs
Review of Transferdelays
Web basedtool
Pre BudgetReport2007
UPDATE!
Just Retirement – Strictly Confidential7
Pre Budget Report – October 2007
www.pensionsadvisoryservice.org.uk
Web basedtool
Pre BudgetReport2007
Just Retirement – Strictly Confidential8
www.pensionsadvisoryservice.org.uk
Just Retirement – Strictly Confidential9
Pre Budget Report – October 2007
Review of Wake up
Packs
Pre BudgetReport2007
40% of “wake up packs” failing to meet regulatory requirements:
Failure to point out advantages of shopping around
Failure to mention enhanced or impaired rates
Not using GAR in illustrations (in house pension)
Little reference to the value of seeking advice
Just Retirement – Strictly Confidential10
Pre Budget Report – October 2007
Review of Transferdelays
Pre BudgetReport2007
Delays found in 60% of cases reviewed
Caused by transferring pension firm in 26% of total reviewed and other parties in 36% of cases
“room for improvement on all sides”
ABI Initiative
Just Retirement – Strictly Confidential11
The difference enhanced rates can make
Note: % increases on average of top 3 standard ratesSource: The Exchange 13/11/08 / Just Retirement 13/11/08
£4,392
£4,553
£4,878
Annual annuity income for a lump sum investment of £50,000
Male aged 65Just RetirementJust Retirement
Modest enhancement
Material enhancement
Severe enhancement
£3,785
£3,806
£3,824
StandardStandard annuity providersannuity providers
Provider A
Provider B
Provider C
+26%
+10%
+16%
Just Retirement – Strictly Confidential12
Put another way…….For £50,000 a well known annuity provider quotes a single life male aged 67 income of
£3,334 per annum
Just Retirement enhanced annuity for the same 67 year old who qualifies for a modest enhancement £4,440.48 per annum
….or an annuity with a 75% spouses pension to a healthy 62 year old wife from Just Retirement of £3,765.84 per annum
….or a single life annuity increasing at 4% yearly, well above the BoE’s inflation target, from Just Retirement £3,511.80 per annum
….or a single life annuity with 100% value protection from Just Retirement of
£3,795.60 per annum
Just Retirement – Strictly Confidential13
Prevalence of Diseases and Obesity (2004/5): % reporting at least one disease, by age band
Source: The 2004 English Longitudinal Study of Ageing: National Centre for Social Research. Note: Some reported conditions will be immaterial for mortality outcomes or ambiguous in diagnosis. However, other indicators exist and can be used (eg smoking status, cholesterol levels)
% Main Disease Groups
How many retirees might actually qualify?
Other chronic: chronic lung disease, asthma, arthritis, osteoporosis, cancer
(excl some skin), Parkinson’s
Cardio-vascular: angina, myocardial infarction, stroke, heart failure, heart murmur, abnormal heart rhythm, diabetes
Just Retirement – Strictly Confidential14
Prevalence of Diseases and Obesity (2004/5): % reporting at least one disease, by age band
Source: The 2004 English Longitudinal Study of Ageing: National Centre for Social Research. Note: Some reported conditions will be immaterial for mortality outcomes or ambiguous in diagnosis. However, other indicators exist and can be used (eg smoking status, cholesterol levels)
0
5
10
15
20
25
30
35
40
52-54 55-59 60-64 65-69 70-74 75-79 80+
Male Female
% Obesity
Up to 40% are likely to
qualify for enhancement
How many retirees might actually qualify?
Just Retirement – Strictly Confidential15
How many get the correct benefits?
Source: ABI and Watson Wyatt
Just Retirement – Strictly Confidential16
3 Key Questions
If “Yes” answer complete a Short Medical Questionnaire
Additional Questionnaire (condition specific) if required
GP Report
Do you Smoke?
Are you taking Prescriptive Medication?
Have you been hospitalised for a Medical Condition?
A reminder of the process
Just Retirement – Strictly Confidential17
Who are the main losers?
Only 10% of funds are > £50,000
Source: ABI 2008 data for 2007 annuity sales
Just Retirement – Strictly Confidential18
Healthy
7.1%7.2%7.3%7.4%7.5%7.6%7.7%7.8%7.9%8.0%8.1%
65 66 67 68 69 70 71 72 73 74
Healthy
Today’s high OMO rates increase critical yields.Requires monitoring regularly when in USP
Yield based on return required to match relevant age annuity income to and at age 75
What about USP alternatives?
Just Retirement – Strictly Confidential19
The Income Drawdown Process
1. Determine Income Level
4. Assess Risk Profile
3. Construct Investment Portfolio
2. Calculate Critical Yield
Enhanced annuity rate?
Just Retirement – Strictly Confidential20
Today’s high OMO rates increase critical yields.Requires monitoring regularly when in USP
Yield based on return required to match relevant age annuity income to and at age 75
What about USP alternatives?
Just Retirement – Strictly Confidential21
The Income Drawdown Review Process
Past Investment Performance
Outlook
Current Investment strategy
Gilt Yields
Income requirements
Attitude to risk
Changes in circumstances
Income Requirements
Critical Yield AssessRisk Profile
Construct Investment
Portfolio
Enhanced annuity rate?
Just Retirement – Strictly Confidential22
Add in 1% p.a. for guaranteed income
High growth rate raises
doubts over ability to
match annuity income,
especially if enhancement
available.
Death benefit must be a significant
factor
Just Retirement – Strictly Confidential23
Who can’t afford the risk?
Gross Earnings = £26,000
Basic State Pension = £ 4,700
Second Tier Pension, say = £ 5,000
Private income required = £ 7,600
Fund required (joint life increasing) = £200,000
£200,000 is not a large fund
£17,300 is not a large total income: many will need more
Despite appearances, this is not a wealthy client
Anything less cannot sustain a short-term shock
In these cases critical yield is not a factor
Just Retirement – Strictly Confidential24
Value Protection
Clients in “poor health” can achieve income without
investment risk, plus return of capital in the event
of death before age 75.
Value Protection
Return of purchase price less income paid up to age 75
Proceeds taxed at 35%
Just Retirement – Strictly Confidential25
Guarantees – The Cost
No Guarantee
5 Year Guarantee
10 Year Guarantee
100% Value Protection
£3,654
£3,639
£ 3,587
£ 3,419
Source: Just Retirement 24/11/08
Male age 60 - £50,000
Just Retirement – Strictly Confidential
Value Protection – Payment on Death
Death after 6 months
Death after 5 years
Death after 10 years
Death after 15 years
£1,710 £48,290
£21,388
£15,810
£17,095
£34,190
£51,285
£31,388
£32,905
£10,276
Tax
Tax
Tax
Male age 60 - £50,000
Annual income: £3,419
Just Retirement – Strictly Confidential27
Uncertain economic climate
Pension Fund fallen in value
Leave fund invested in the hope that it will recover
View that annuity rates will improve if markets pick up
Deferring annuity purchase
Just Retirement – Strictly Confidential28
Can you afford to forego this income?
Are there other assets that you can live off?
If so, for how long?
What is the risk that you need to draw your income at an even worse time?
Are you prepared to continue working?
If so – for how long?
Deferring clients – questions to ask
Just Retirement – Strictly Confidential29
In December 1999, the FTSE100 peaked at 6930 – it has not reached this level since
The latest peak was at 6751 in June 2007 – 7 years later
From December 1999 to June 2007 annuity rates for single males declined by 18%
How long?
Just Retirement – Strictly Confidential30
Is deferring the right option?
Impacts all aspects of at pensions planning at retirement increases risks associated with USP and some ‘third way’ products in retirement.
Just Retirement – Strictly Confidential
Male aged 65 - £50,000
Age of Client
Total Annuity income:-received starting at age 65:
Total Annuity income received starting at age 66:
Difference
65
£3,859
£0
-£3,859
66
£7,719
£ 4,169
-£ 3,550
68
£15,439
£12,504
-£ 2,934
75
£42,459
£41,683
- £ 775
78
£54,038
£54,188
+ £ 149
Source: The Exchange. Assumes Standard annuity rates
Assumed fund growth for deferral period 7% with an allowance of 1% for charges
Is deferring the right option?
Just Retirement – Strictly Confidential32
Handset Question 2
1. I would like to receive a copy of Just Retirement’s USP Guide
2. I would like to receive a copy of Just Retirement’s Cost of Delay fact sheet
3. I would like to receive both the USP Guide and the Cost of Delay fact sheet
4. Nothing, thanks!
Just Retirement – Strictly Confidential33
Buy An Annuity
A secure income for life
Not dependent upon the stock market
Options available:
Enhanced rates for up to 40% of clients
Lump Sum death benefit
Provision for Spouse / Dependents
Inflation proofing income
Guarantee periods
Just Retirement – Strictly Confidential34
Standard Annuity Commission 1%Enhanced Bankhall/PMS Commission 1.5%
Flexible Commission
Funds up to £20,000 - £500 commission
Funds over £20,000 – up to 2.5% Flexible Commission up to a maximum of £10,000
Profitable Annuity Business
Just Retirement – Strictly Confidential35
Best Standard Rate Just Retirement Enhanced Rate
£ 50
0 C
om
mis
sio
n
£ 3,897
£ 75
0 C
om
mis
sio
n
£ 1,
250
Co
mm
issi
on
£ 4,500 £ 4,463
Source The Exchange & Just Retirement 17/10/08
£566 more income
Flexible Commission - £50,000 fund
Just Retirement – Strictly Confidential36
Grasp the Opportunity!
Prepare to be proactive in this market place
Plan to be profitable in this market place
Review your advice process for “at retirement”
Keep up to date with developments – join
Benefit from Treating Customers Fairly
Just Retirement – Strictly Confidential37
Handset Question 3
1. I would be interested in an Annuity Referral Service
2. I would not be interested in an Annuity Referral
Service
Just Retirement – Strictly Confidential38
Contact Us
Your next steps?
For more information, please contact:
IFA Sales Support 0845 302 2287
Email: [email protected]
Visit: www.justretirement.com