Download - ©UFS Bankhall Advisor Forums Retirement Planning: Risks and Rewards MetLife Europe Limited
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A growing business
Source: Watson Wyatt
By 2013, almost one million new at retirement products each year compared with 460,000 in 2007
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Why you should invest your time
• Retirement income advice set to explode
• Move from state support to individual reliance
• Baby boomers
• DB to DC
• Personal pensions 1988
• UK solutions are complex and most require advice
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Guarantees are a growing opportunity
2001 2011
Source: Standard Life Investment Briefing May 2007
PP Ann
SIPP DD
Funds
Age
PP Ann
SIPPDD
VA
Funds
Age
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Retirement Risks
• Risks facing retirees– Longevity
– Inflation
– Investment» Performance
» Timing
– Interest rates
– Health
• Amongst a number of others…
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Life Expectancy at age 65United Kingdom
Government Actuaries Department, central cohort projection for 2003 and 2006
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Running Out of Money6% investment growth per annum, £100,000 investment, income deducted annually in advance
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FTSE All Share Index Total Return 1988-2007
11.53%
36.21%
-9.67%
20.80%
28.39%
-5.86%
23.92%
16.55%
23.56%
13.77%
24.20%
-5.92%
-13.22%
-22.68%
20.86%
12.80%
22.11%
16.80%
5.29%
20.43%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Lipper 15th February 2008
The value of investments can fall as well as rise. Past performance is not a guide to future performance. You may get back less than you invested.
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FTSE 100 Quarterly Trading Ranges
6,036 6,1335,987 5,987
6,444
6,732 6,717 6,7316,479
6,376
5,6375,6195,507 5,507
5,682
6,001
6,316
5,8596,071
5,4145,518
4,8194,600
5,000
5,400
5,800
6,200
6,600
7,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32006 2007 2008
Source: Lipper Hindsight
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Two ways of taking income
• Invest immediate income in cash and leave balance invested
• Invest all funds and take income each month
• What are the consequences of each?
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Invest all fundsHow much income really costs
Rising market
Falling market
£25,380
£36,274
Discounted cost over 5 years of £500 p.m. income at +7% p.a. and -7% p.a.
Gross cost of income £30,000
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Set cash aside
DrawdownPension FundCritical Yield
8% per annum Equities75%
Cash25%
Critical Yield goes up
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Set cash aside
Critical yield 8%Male 65 max GAD 8.4%£200,000 investment gives income of £16,800 p.a.
3 years income allocated to cash receiving 5% p.a. £46,790Required yield from remaining fund 8.9%
3 years income allocated to cash receiving 3% p.a. £48,171Required yield from remaining fund 9.6%
3 years income allocated to cash receiving 4% p.a. £47470Required yield from remaining fund 9.2%
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Investment Timing£500,000 invested with £25,000 income taken annually and constant 6% per annum growth
The figures above show the return for the income taken at the growth rate shown. They do not represent any particular investment or portfolio of investments.These figures are for illustrative purposes only and cannot be guaranteed. They are not a recommendation or advice as to how markets will perform.
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Sequence of ReturnsAnnualised returns from two portfolios
Average annual return in both cases is 10.39%
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Sequence of ReturnsAnnualised returns from two portfolios
The two portfolios, £100,000 invested with £5,000 income increasing at 3.5% per annum taken annually in advance
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You Tailor Their Pension, Not Us
Base Product
Product
Investment
Guarantees
Options
Index Funds
Index Portfolios
Goldman Sachs
Managed portfolios
SIPP
Capital Guarantee
Deferred Income
Guarantee
Immediate Income
Guarantee
Fund Switching
Auto Rebalancing
CustomerAgreedRemuneration
Trail Commission
Initial Commission
Fee
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Applicable at every stage of retirement planning
Accumulation ConsolidationPre
RetirementRetirement
Deferred Income Guarantee
Dea
th
Capital Guarantee
Income Guarantee
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Capital GuaranteeLock-ins every three years to ensure value at end of term
Secure ReviewFund Value Annual Growth
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Secure Income Option (deferred)
• The Secure Income Option allows you to guarantee your income but defer the time when you start
• For each year of deferment you will increase the Secure Income Base by 3% of the initial contribution
• Every three years the Secure Income Base can increase further with the Secure Income Review
• This means that clients can have certainty about what income they will receive in the future
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Secure income Option (deferred)£100,000 initial contribution – single life income selected
Age at inception
Guaranteed income if it commences at:
60 65 70 75
50 £6,240 £7,685 £9,280 £10,850
55 £5,520 £6,890 £8,410 £9,920
60 - £6,095 £7,540 £8,990
65 - - £6,670 £8,060
70 - - - £7,130
The guaranteed income for life may be much greater as every three years a Secure Income Review takes place which resets the Secure Income Base to the then fund value if greater
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Deferred Income Guarantee3% increases guaranteed plus lock-ins where market falls at the end
Secure Income ReviewFund Value Annual Growth Secure Income Base
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Secure Income OptionLock-ins every three years to increase Secure Income Base
Secure Income ReviewFund Value Annual Growth
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Overcoming GAD Limits
• GAD limits the amount of income which can be taken from a drawdown fund
• Limits are:– 0% - 120% of Basis Amount before age 75
– 55% - 90% of Basis Amount for age 75 or over
• Could potentially cause income to be reduced when under guarantee
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Fund level for GAD calculation
Difference between fund value and GAD
value made up by ‘notional units’
Overcoming GAD Limits
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MetLife Corporate Video - Rosy
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