alico wealth management

21
1 The Retirement Market For Professional Adviser Use Only Stephen Hunter National Sales Director Ross Holloway National Accounts Director A Key Opportunity for Advisers

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Page 1: Alico Wealth Management

1

The Retirement Market

For Professional Adviser Use Only

Stephen HunterNational Sales Director

Ross HollowayNational Accounts Director

A Key Opportunity for Advisers

Page 2: Alico Wealth Management

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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

Page 3: Alico Wealth Management

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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

Page 4: Alico Wealth Management

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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

Page 6: Alico Wealth Management

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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

Page 8: Alico Wealth Management

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Annuity rate movements

Source: The annuity bureaux 2009

Page 9: Alico Wealth Management

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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

Page 11: Alico Wealth Management

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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%

Page 12: Alico Wealth Management

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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?

Page 14: Alico Wealth Management

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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

Page 15: Alico Wealth Management

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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

Page 18: Alico Wealth Management

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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

Page 21: Alico Wealth Management

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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.