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A Better Income from Retirement Planning

A Better Income from Retirement Planning. Peter Cantrell Business Development Manager. Today we will discuss. The opportunity Open Market Option - update Options, risks and considerations at retirement Profitable Advice Grasping the opportunity. Handset Question 1.

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A Better Income from Retirement Planning

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  1. A Better Income from Retirement Planning Peter Cantrell Business Development Manager

  2. Today we will discuss • The opportunity • Open Market Option - update • Options, risks and considerations at retirement • Profitable Advice • Grasping the opportunity

  3. Handset Question 1 • In the 5 year period between 2007 and 2012, the value of the “at retirement” market is forecast to have: • Decreased by 5% • Increased by 10% • Increased by 40% • Increased by 100%

  4. Value of the At Retirement Market Source Watsons In Retirement Survey 2008

  5. 30 years of progress? Introduction of OMO 1978 FSA Regulation 2002 Treasury Review 2007 All retirees OMO % 60%

  6. Pre Budget Report – October 2007 UPDATE!

  7. Pre Budget Report – October 2007 www.pensionsadvisoryservice.org.uk

  8. www.pensionsadvisoryservice.org.uk

  9. Pre Budget Report – October 2007 • 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

  10. Pre Budget Report – October 2007 • 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

  11. The difference enhanced rates can make Annual annuity income for a lump sum investment of £50,000 Male aged 65 Just Retirement Severe enhancement +26% • £4,878 Material enhancement +16% £4,553 +10% Modest enhancement £4,392 Standardannuity providers Provider A £3,824 Provider B £3,806 Provider C £3,785 Note: % increases on average of top 3 standard rates Source: The Exchange 13/11/08 / Just Retirement 13/11/08

  12. 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

  13. Prevalence of Diseases and Obesity (2004/5): % reporting at least one disease, by age band How many retirees might actually qualify? Main Disease Groups % • 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 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)

  14. Prevalence of Diseases and Obesity (2004/5): % reporting at least one disease, by age band How many retirees might actually qualify? % Obesity Up to 40% are likely to qualify for enhancement 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)

  15. How many get the correct benefits? Source: ABI and Watson Wyatt

  16. A reminder of the process Do you Smoke? 3 Key Questions Are you taking Prescriptive Medication? Have you been hospitalised for a Medical Condition? If “Yes” answer complete a Short Medical Questionnaire Additional Questionnaire (condition specific) if required GP Report

  17. Who are the main losers? Only 10% of funds are > £50,000 Source: ABI 2008 data for 2007 annuity sales

  18. What about USP alternatives? 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

  19. 2. Calculate Critical Yield 3. Construct Investment Portfolio 4. Assess Risk Profile The Income Drawdown Process 1. Determine Income Level Enhanced annuity rate?

  20. What about USP alternatives? 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

  21. Enhanced annuity rate? Construct Investment Portfolio Income Requirements Assess Risk Profile Critical Yield The Income Drawdown Review Process • Past Investment Performance • Outlook • Current Investment strategy • Gilt Yields • Income requirements • Attitude to risk • Changes in circumstances

  22. 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

  23. 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

  24. Value Protection Value Protection Clients in “poor health” can achieve income without investment risk, plus return of capital in the event of death before age 75. Return of purchase price less income paid up to age 75 Proceeds taxed at 35%

  25. Guarantees – The Cost Male age 60 - £50,000 No Guarantee £3,654 5 Year Guarantee £3,639 10 Year Guarantee £ 3,587 100% Value Protection £ 3,419 Source: Just Retirement 24/11/08

  26. Value Protection – Payment on Death Male age 60 - £50,000 Annual income: £3,419 Death after 6 months £1,710 £31,388 £48,290 Tax Death after 5 years £17,095 £21,388 £32,905 Tax Death after 10 years £10,276 Tax £15,810 £34,190 Death after 15 years £51,285

  27. Deferring annuity purchase • 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

  28. Deferring clients – questions to ask • 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?

  29. How long? • 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%

  30. 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.

  31. Is deferring the right option? 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

  32. Handset Question 2 • I would like to receive a copy of Just Retirement’s USP Guide • I would like to receive a copy of Just Retirement’s Cost of Delay fact sheet • I would like to receive both the USP Guide and the Cost of Delay fact sheet • Nothing, thanks!

  33. 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

  34. Profitable Annuity Business • 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

  35. Flexible Commission - £50,000 fund Best Standard Rate Just Retirement Enhanced Rate £ 4,500 £ 4,463 £ 3,897 £566 more income £ 750 Commission £ 1,250 Commission £ 500 Commission Source The Exchange & Just Retirement 17/10/08

  36. 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

  37. Handset Question 3 I would be interested in an Annuity Referral Service I would not be interested in an Annuity Referral Service 37

  38. Contact Us Your next steps? • For more information, please contact: • IFA Sales Support 0845 302 2287 • Email: ifasupport@justretirement.com • Visit: www.justretirement.com

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