Bankhall Conference 2009 - Partnership

transcript

www.partnership.co.uk

Click to edit Master subtitle styleBankhall

November 2009

Martin Lines

Retirement Technical Manager

The Retirement Review

Agenda

• Minority Report?

• The Retirement Review

• Phased by the options?

Agenda

Market size

£1.7bn

Variable £0.4bn’

Investment-linked’ £1.2bn

Annuity

£14.7bn

Watson Wyatt In Retirement Study – predictions for 2009

Impaired Annuity£1.9bn

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?

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”.

Agenda

Ageing ‘retired’ population!

• Income Drawdown / USP is 14 years old!

• Personal Pension Phasing is 21 years old!

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?

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

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

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.

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

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?

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

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?

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!

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?

Look Familiar? Lump sum death benefits year 1

£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

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

Agenda

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

Tax efficiency

Annuity

More reliance on annuity as client gets older

Tax may be subject to change in the future and depends on individual circumstances.

Tax efficiency

Annuity

More reliance on annuity as client gets older

Tax may be subject to change in the future and depends on individual circumstances.

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

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

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)

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

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

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

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?

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”.

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

Bankhall Conference 2009 - Partnership

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