MERCERMERCER

FREEDOM AND CHOICE IN PENSIONS

MERCERMERCER

CONTENT

ACCESS TO FREEDOMAND FLEXIBILITY

THE NEW DC WORLD DB TO DC TRANSFERS

FIONA DUNSIREUK Market Leaderand ChiefExecutive Officer

ROGERBREEDENProduct LeaderDC & SavingsTeam

STEVE GEERESenior Partner

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ACCESS TO FREEDOM AND FLEXIBILITY

ACCESSING THE CHANGES

• Statutory override to scheme rules

• Transfers up to normal retirementage

• Guidance Guarantee

• Greater access to smaller fundsFROM APRIL 2015

• Flexible access to retirementsavings from age 55

• No one has to buy an annuity

• No limits on the amount that canbe withdrawn each year

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THE NEW DC WORLD

Annual allowance for those already inflexible drawdown or entering

drawdown (exemption for small pots)

IN THE FUTURE

55%Tax charge on death indrawdown likely to be

reduced

£10,000

57 from 2028Minimum retirement age

increasing and linked to StatePension Age

DC

MOREFLEXIBLEANNUITIES

• Decrease incomepayments

• Pay lump sums

• Provideguaranteesbeyond 10 years

• Pay lump sums upto £30k on death

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THE NEW DC WORLDMAKING IT HAPPEN

Determine policy and processon access to flexibility andtransfers.

Review investment choicesand Default Strategy.

TO DO

DC

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THE NEW DC INVESTMENT MODEL

Growth plus

Growth

Cash

Variableincome

Securedincome

Saving Phase Retirement Destination

Critical engagement point

Pre-retirementPhase

DC

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THE NEW DC WORLDMAKING IT HAPPEN

Determine policy and processon access to flexibility andtransfers

Review administrationrequirements and capabilities

Review investment choicesand Default Strategy

TO DO

DC

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GUIDANCE GUARANTEE

Guidance Guarantee to be provided byorganisations with no conflictMAS/TPAS

For every individual with DC pension savings (includingAVCs within a DB scheme)EVERY INDIVIDUAL

FCA to set standards and oversee delivery –consultation published

Providers and trustees responsible for ensuring retireesare offered the guidance

£ Paid by levy on financial services firms

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GUIDANCE GUARANTEEPOLLING QUESTION 1

IN PROVIDING MEMBERS SUPPORT WITH THEIRDECISION MAKING AT RETIREMENT WILL YOU:?

Only signpostthe Guidance

Guarantee

a

Offer additionalfinancial

planning in theworkplace

b

Facilitate anintroduction to a

firm ofretirement

income productproviders or

brokersc

b) and c)combined

d

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SUPPORTING CHOICE

Ensure retirees have clearlysignposted access to theGuidance Service

Review at retirement supportand services

Make it easy to consolidateprevious pension arrangements

Review member communicationand engagement

TO DO

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DB TO DC TRANSFERS

MERCERMERCER

DB TO DC TRANSFERSSAMPLE RETIREMENT STATEMENT

Name: M ABCNational Insurance No: ZZ999999ADate of Birth: 31 December 1950Date Joined Scheme: 1 June 1996Accrual Cessation Date: 1 June 2011Total Service: 15 years 0 monthsNormal Retirement Date: 31 December 2015

RETIREMENT STATEMENT FOR M ABC

Option (1) – Full pension £10,000 paOption (2) – Tax free lump sum £50,000plus residual pension £7,000 paOption (3) – Transfer value £250,000

TRANSFER VALUE

£0 £250,000

MERCERMERCER

DB TO DC TRANSFERSSAMPLE RETIREMENT STATEMENT

Name: M ABCNational Insurance No: ZZ999999ADate of Birth: 31 December 1950Date Joined Scheme: 1 June 1996Accrual Cessation Date: 1 June 2011Total Service: 15 years 0 monthsNormal Retirement Date: 31 December 2015

RETIREMENT STATEMENT FOR M ABC

Option (1) – Full pension £5,000 paOption (2) – Tax free lump sum £25,000plus residual pension £3,500 paOption (3) – Transfer value £125,000

TRANSFER VALUE

£0 £250,000

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DB TO DC TRANSFERSPOLLING QUESTION 2

WHAT PROPORTION OF DB MEMBERS DO YOU THINK WILLELECT TO TRANSFER THEIR BENEFITS AT RETIREMENT??

<10% 10 – 20% 21 – 40% 41 – 60% >60%

a) b) c) d) e)

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WHY MIGHT A DB MEMBER TRANSFER AT RETIREMENT?

IF THEY:

• Are heavily in debt

• Have a short life expectancy

• Do not have dependants

• Would prefer wealth to an incomestream

ALSO:

• Because they will now be activelyconsidering it

• Concerns over employer covenant

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DB TO DC TRANSFERSTRANSFER VALUE REVIEW

Mostly atretirement?

Moretransfers?

Selection?

Comparisonwith

commutationfactors

Partialtransfers?

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LIABILITY MANAGEMENT

RetirementFlexibility (ReFlex)

Enhanced TransferValues (ETVs)

Pensions IncreaseExchange (PIE)

MEMBER CHOICES

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DB TO DC TRANSFERS

Review transfer values (trustees)and liaise with employer

TO DO

Agree communicationapproach

Monitor experience - mayimpact disinvestment, LDI

Revisit liability management

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RETIREMENT IN THE CONTEXT OF THE EMPLOYEEVALUE PROPOSITION

CASH BENEFITS

CAREER WORKPLACE

PRIDE/AFFINITY/PURPOSE

CUTURAL ALIGNMENT

CASH PENSIONS& BENEFITS

CAREER WORKPLACE

AFFINITY/PRIDE/

PURPOSE

CULTURAL ALIGNMENT

MAKING RETIREMENT SAVING ATTRACTIVE AGAIN

FROM:

FOR EMPLOYERS:• Carries high cost and risk

for the company for littleimpact on engagement

• The demise of DB hashurt affinity and trust

FOR EMPLOYEES:• Pensions seem complex,

technical and dull…until Ineed them

• The value only comesclear when there’s change

• Because I don’tunderstand them, if youchange them I’mworried

• Lost entitlement

TO:

FOR EMPLOYERS:• An opportunity to reset the

importance of retirementsavings

• Less risk and complexity• Value in line with cost

FOR EMPLOYEES:• Choice and freedoms

mean less to fear• Starts to feel like real

money• Choice to suit my life

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SCHEME OF THE FUTURE

Pension Section Savings Section

Tax optimisation transfer

Net

At retirement (withadviser support option)

Gross - Auto Enrolment compliant

GuidanceService

Short tomedium termexpenditure

Cash

Variable income(outsourced

or same platform)

Annuity /productprovider

Employer payrollelection

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THE FUTURE FOR DCPOLLING QUESTION 3

IN THE FUTURE, SAY, 3-5 YEARS TIME, DO YOU THINK YOURORGANISATION WILL OFFER?FLEXIBLE SAVINGS ALONGSIDE A TRADITIONALPENSION SCHEME?

Yes No Don’t know

a) b) c)

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THE FUTURE FOR DCPOLLING QUESTION 4

IN THE FUTURE, SAY, 3-5 YEARS TIME, DO YOU THINK YOURORGANISATION WILL OFFER?POST RETIREMENT SOLUTIONS

Within thescheme

Outsource to athird party

Won’t offer them,will let members

find their ownsolution

a) b) c)

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QUESTIONS VIAONLINE CHAT