Income Solutions from the Prudential

Rethinking RetirementBankhall

Annual Conference 2009John Bendall Dip PFS

Business Development Manager

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Rethinking Retirement

In 2008 the median average defined contribution

(DC) pension pot when converted into an annuity

was about £15,000 – today generating a meagre

income of £920 a year.*

*Source: Association of British Insurers (ABI), 2008

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Rethinking RetirementDemand for advisory services will increase

Increased numbers of individuals approaching retirement and in retirement

Complexity of personal circumstances (eg lots of pension pots)

The role that housing has to play in meeting retirement needs

The limited numbers of advisers currently qualified and licensed to provide such advice

Assistance in achieving optimal income throughout retirement

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Rethinking RetirementMarket History

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8000FTSE 100(right hand scale)

Drawdown Launched

Annuities (left hand scale)

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Gilt yields(left hand scale)

Annuity rates: £100k Annuity Rate male 65, guaranteed 5 years as income, monthly in advanceGilt yields: Bank of England UK instantaneous nominal forward curve, Maturity years 19Data up to the 15/09/2009

FUTURE?No No Crystal BallsCrystal Balls

However you need However you need to to

be prepared be prepared whateverwhatever

the outcome?the outcome?

RETHINKING RETHINKING RETIREMENTRETIREMENT

5

39%

1 in 3 will live to age 90

14%

Distribution of deaths: Male 60

Source: "PCMA00u2008 (future improvements mid-cohort)"

ANNS10683

Rethinking RetirementCustomers do not understand their longevity risks

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Rethinking RetirementInflation risks

Average pensioner inflation reached 5.4% in January 09‚ significantly higher than the 0.5% rate average rate for non-pensioners Source Age Concern

AnnualInflation

5years

10years

15years

25years

PURCHASING POWER OF LEVEL INITIAL INCOME OF £1000

4.00% £821 £675 £555 £375

6.00% £747 £558 £417 £233

Could you afford to live on 50% of your income in 12 years time?

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Rethinking RetirementCustomer Journey

Pre-retirement

Transition

First Flush

Slowdown

Final Years

The retirement journey can be split into a number of distinct phases

Income requirements here are often the greatest?

(20%)

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Remaining compliant

Remaining profitable

Frequency and content of client review

Retirement Income Market Developments

Product suitability

Changing costs of Guarantees…

Managing risk

Future legislation changes

Rethinking RetirementAdviser risks

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Rethinking RetirementOngoing retirement advice is increasingly critical

Take a view of a clients assets and potential income needs that look across the full span of their likely/possible retirement

Regularly review client’s positions to ensure they are using their overall resources in ways that are most likely to meet their needs

Take a more holistic view to retirement planning

Develop a competitive and clear retirement planning proposition- Which may mean one purchase today with a plan to exit in future?

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Rethinking RetirementLegislation and Regulation

Should be based on how real consumers behave (we’re not all perfectly rational!)

Compulsory Annuity Age 75 rules should be independently reviewed

Equity Release regulations – greater consumer access to advice

Means tested benefits should be reviewed

Encourage pension saving

Critical success measured for the RDR should be - Increases availability of advice and guidance- Raises the level of engagement with consumers

The final details of the Solvency II framework will not be known until end 2010/2011 after a very significant amount of industry consultation ahead of then. But…….

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Rethinking RetirementProduct Providers - Product Innovation

Essential consumers have confidence that providers can deliver

Consumers are attracted to guarantees – but?

The market needs choice – but not costly and unproven

Innovation needs to work for all- the consumer (easy to understand), - the adviser (clarity around pro’s and con’s) - the provider (profitable) - and the regulator (TCF/RDR etc)

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MIDDLE

MARKET

Shares

Income Drawdown

Unit Trusts & OEICSPEPs & ISAsU-L BondsWP Bonds

High

Low

Low LongevityRisk

High

InvestmentRisk

Rethinking RetirementThe market needs choice

Home

Annuities

Occupational& State

Pensions

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Rethinking RetirementProduct Innovation in the ‘middle market’

•Potential to have Higher initial Income

•Ability to alter income levels every 2 years

•Annual remuneration options

•Income guarantees

•A low initial premium of only £10k

•De risking Drawdown

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Rethinking RetirementComparing income choice and income drawdown

Contract

Age

Income Drawdown Type B Critical Yield

Income Choice Required Smoothed Return

Difference

65 5.6%

Assumes:Male 65 £100k net TV £6k pa income (monthly in advance)100% Managed Fund – 1.3% AMC 3% Funded Initial Commission+0.5% Trail Commission

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Rethinking RetirementComparing income choice and income drawdown

Contract

Age

Income Drawdown Type B Critical Yield

Income Choice Required Smoothed Return

Difference

65 5.6% 3.9%

Assumes:Male 65 £100k net TV £6k pa income (monthly in advance)100% Managed Fund – 1.3% AMC 3% Funded Initial Commission+0.5% Trail Commission

1.7%

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Age Conventional ICA 6% Flexible Drawdown/ USP

Source: Prudential, Oct 2009 ICA FLA 3.75% GAD Conventional OMO Best buy tables 11th Oct 2009

Maximum Starting Incomes £100,000, single life, No Guarantees

60 6,246 7,224 6,643 7,080

65 6,992 7,909 7,340 8,040

70 8,024 8,891 8,350 9,360

75 9,538 10,389 9,895 £5,225 – £8,550 ASP

1) Clients with younger spouses2) Gifting to Charity3) Care dependents choices4) Reviewed annually

Rethinking RetirementAnnuity income comparisons

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Rethinking RetirementOptions initiative

31Days2007

8Days

Av Q1 09

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Rethinking RetirementAIFA – Financial Planning Through Retirement

Venue Location DateThorpe Park Leeds 04-NovThe Belfry Birmingham 05-NovAztec Bristol 10-NovHilton Tower Bridge London 25-NovMercure Southgate Exeter 03-Dec

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Third WayDevelopments

Enhanced Annuities

Guaranteed Drawdown

Asset BackedAnnuities

Exit StrategiesFor Drawdown

Unit Linked Annuities

Conventional Annuities

Take a look at the AIFA report “Financial Planning through Retirement”

Benchmark your business against AIFA “Good practice” Guidance notes

What is your exit strategy for Drawdown?

Ensure that quality decumulation-focused training is available to all your advisers

Retirement Planning- Growing and very attractive market – make sure your proposition is right!

Talk to the company who has all the options?

Rethinking RetirementSUMMARY

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Rethinking Retirement

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