alico wealth management
TRANSCRIPT
1
The Retirement Market
For Professional Adviser Use Only
Stephen HunterNational Sales Director
Ross HollowayNational Accounts Director
A Key Opportunity for Advisers
2
At ‘retirement’ opportunity
Driving factors:•DC Pension sales in late 1980s/early 1990s•Equity recovery in DC funds•Increasing longevity
2008 2009 2010 2011 20120
5
10
15
20
25
At retirement market (£bn)
UK ‘at retirement’ market for financial products to increase by 60% in next 5 years from £14 billion to £23 billion Source: Watson Wyatt Press Release – UK – July 2009
Source: Watson Wyatt, July 2009
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Age
Population (thousands) Population (thousands)
-2,500 -2,000 -1,500 -1,000 -500 0 500 1,000 1,500 2,000 2,500
0–4
5–9
10–14
15–19
20–24
25–29
30–34
35–39
40–44
45–49
50–54
55–59
60–64
65–69
70–74
75–79
80–84
85 & over
An ageing population
Post WW2 baby-boom
1960s baby-boom
Males Females
5005001000150020002500 1000 1500 2000 25000
The ‘baby-boomers’ are beginning to retire…
The market increase will be sustained
Source: Population: by age and sex 2001. Census, Office for National Statistics; Government Actuary's Department
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Advisers
•Regulation•TCF•RDR•Risk•Client relationships•Business profitability
At retirement; the issues
Clients
•Life Expectancy•Health•Annuity rates•Lifestyle•Relationships•Attitudes•Investment conditions•Inflation
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The current market
A chance to re-invent and grow…
93% of people buy a lifetime annuity when they retire (460,000 people in 2008) – with no chance to change income levels, and poor death benefits
65% of people don’t use their Open Market Option
64% of people buying an annuity choose a Single Life Level Annuity to secure the highest starting income… that inflation will erode away
93% 65% 64%
Source: ABI research paper No.8, 2008 | ABI New Business statistics 2008
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The retirement landscapeIn
vest
men
t Ris
k
Mortality Risk
Source: ABI New Business statistics 2008
Lifetime Annuities
£12bn
Drawdown
£3bn
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Significant and sustained increases in life expectancy
“People are living longer and face a longer period of retirement, during which their income needs will be greater and more varied than those of previous generations.”
ABI Retirement Income Policy Paper. Time for Change: Seven proposals to improve DC pension benefits in retirement, January 2010.
“Today, average life expectancy in the UK is increasing at more than five hours a day, every day.”
Rejuvenating ageing research. A report by the Academy of Medical Sciences, September 2009.
Changing employment and retirement patterns
“Retirement is no longer an absolute switch from working life to retirement, but a phased one – likely to include either a longer working life or even a return to the workplace.”
ABI Retirement Income Policy Paper. Time for Change: Seven proposals to improve DC pension benefits in retirement, January 2010.
Drivers for change
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Annuity rate movements
Source: The annuity bureaux 2009
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Delaying annuitisation?
When should you buy an annuity?
Source: www.fsa.gov.uk/tables (25 September 2008)
70% higher
Annuity rates could be lower in the future
50
£6,084
Level Annuity rates: single male, £100k, no guarantee
£6,480£7,008
£7,728
£8,832
£10,428
55 60 65 70 74
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Enhanced annuities – the benefits of delay?
5000
6000
7000
8000
9000
10000
11000
12000
13000
50 55 60 65 70 74
ORDINARY RATES SMOKER RATES
Source: sharingpensions.co.uk 10/09/09
£100,000 purchase price, level annuity
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The retirement headache
Inflation rate for average pensioner couple
4.6%
Outlook for inflation?
Source: Bank of England, January 2010. CPI inflation projection based on constant nominal interest rates at 0.5% and £200 billion asset purchases.
Source: Institute of Financial Studies (Press release 09/03/09)
Single male pensioner
5.8%Single female pensioner
6.8%
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Changing face of retirement
“Retirement is no longer an absolute switch from working life to retirement, but a phased one – likely to include either a longer working life or even a return to the workplace.” ABI, January 2010.
Clients aged 75+
•Health may have deteriorated•Less active•Complete retirement•Inheritance received•Property down-sized•Future more limited•May have lost partner•Desire to do less•Expenditure reduced
Has traditional ‘retirement’ moved here?
Clients aged 55 – 65
•Healthy•Active•Part time work •Parent(s) alive•Retain current property•Future largely unknown•Partner alive•Desire to do more•Expenditure still high
A very different retirement to 20 years ago
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Time for change?
•Lifetime annuity is the default option for the majority
•Clients to think carefully before taking an irrevocable decision
•Why would a client lock themselves out of flexibility and future
upside
•Annuitisation at age 75 as the new default?
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ABI Retirement Income Policy Paper – Time for Change on Retirement Income options
This paper published 7 January 2010 discusses
Building a flexible and sustainable framework
• Raising the current age requirement for buying an annuity or ASP from 75 to 80
• Allowing value protection payments to dependants of those who die after age 75
• Addressing the issue of ‘stranded pots’ by standardising trivial commutation limits for
occupational and contract-based DC pensions
• Introducing an exemption from the requirement to buy an annuity (or ASP) for retirement
income products that provide a lifetime income guarantee
• Increasing the maximum GAD income limit applied to ASPs from 90% to 120%
• Reducing the tax rate on lump sum death benefits for annuities, Unsecured Pensions and
ASP
• Allowing consumers with small pension funds to amalgamate their funds with their
spouse or partner’s pension savings to enable the purchase of a joint-life annuity
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The retirement landscape
Middle m
arket
Inve
stm
ent R
isk
Mortality Risk
Lifetime Annuities
£12bn
Drawdown
£3bn
Source: ABI New Business statistics 2008
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How the market has changed
RISKlower higher
Flexibility
higher
Lifetime Annuities
Middle Market
Products
Unsecured Pension
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Client objectives
• Cash now, income later
• Fixed, secure income for life
• Fixed secure (higher) initial level of income
• Defer all or part annuity purchase
• Maximise flexibility
• Estate preservation
• Keep investment control
Maintain pension pot
Beat inflation
Investment growth
Balanced against risks facing retirees
• Investment performance and timing• Corrosive effects of inflation• Other economics, e.g. interest rates • Longevity• Health fade
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Adviser objectives
• The beginning of a new client relationship
• Increased demand for advice
• Long term relationships - extending the ‘marriage’ to the client
• Fees that reflect ongoing advice and support
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Our view on retirement planning - the ‘Retirement Journey’
30 – 40 years before retirement
15 - 20 years before retirement
Within 5 years of retirement
Earlier retirement years Later retirement years
At Retirement
Saving towards retirement
Consolidation
Planning
Managing throughout retirement
Building up funds through contributions
Retirement renew
Considering issues and
optionsAdapting to
changing circumstances
Four key phases:
• Saving – thinking about how to spend retirement years, building up the funds needed to enjoy retirement to the full, deciding on a suitable investment strategy.
• Consolidating – appraising retirement goals and saving plans, ‘tuning up’ investment strategy.
• Planning - understanding requirements in detail, making choices about retirement savings.
• Managing the retirement lifestyle – maximising and sustaining income, fulfilling chosen lifestyles, cushioning against unforeseen issues and events.
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The Retirement Plan from the Select Portfolio
USP ‘account’ - Income
To be invested, with GAD reviews every 5 years
PPS ‘account’ - Savings
Short Term AnnuityTo provide a fixed income for a set
term (min 1 year, max 5 years)No transfer value
Select Investment Range
Alico Choice, Managed Portfolios, Guaranteed, Structured
Uncrystalised accumulation contract(s)
USP Transfers
Tax-Free CashLump sum of up to
25% of value of pension pot
Lifetime AnnuitySeparate contractAbility to ‘drip feed’
(as a minimum) capital amount of
£5k
Income(Fixed)
Income(Variable)
Income(Fixed)
Income not linked to GAD limits
After term,no value
Combined income not to exceed GAD limits
Retirement Plan
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“Retirement may be an ending, a closing, but it is also a new beginning."
Thank You
Alico Wealth Management is a trading style of American Life Insurance Company Limited (Alico), a private limited company incorporated with limited liability in
Delaware, USA No. 0123730. Head Office: One Alico Plaza, Wilmington, Delaware, USA 19801. Registered in England No. BR000230.
Branch Office: 22 Addiscombe Road, Croydon, CR9 5AZ. Authorised and Regulated by the Financial Services Authority (FSA Reference Number 139417).
comp number 8261. Expiry 15.01.2010.