personal pensions to rdr and beyond…… · 31/05/2012 12 stakeholder pension versus rdr charged...

31/05/2012

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Personal Pensions to RDR and Beyond……

Robert Cochran

As part of the Lloyds Banking Group, Scottish Widows is proud to be an Official Provider of the London 2012 Olympic and Paralympic Games

The finishing line?

• The Olympics

• RDR

A t l t• Auto-enrolment

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Agenda

• The individual pension market and legacy assets

• RDR and Product Design

• Helping getting the transfer market movingHelping getting the transfer market moving

• Individual Pensions beyond RDR

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Individual Pension Market

Pension Type 2008 2009 2010 2011

Stakeholder Pension 226 147 110 106

Personal Pension 990 720 753 721

SIPP 819 695 834 896

• Market pretty flat

• Stakeholder pension sales down

Source: ABI all figs are £million APE

Total PP & SIPP 1809 1415 1587 1618

Total - other 64 35 25 21

Total Pre- Retirement 2099 1597 1772 1744

Stakeholder pension sales down

• 2011 Transfers account for just over 50% of individual pension sales

• How will all this existing business be affected by RDR?

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Clarity around legacy assets

• RDR and commission

From 31st December 2012 firms are banned from receiving or from paying commission in relation to personal recommendations to pretail customers on retail investment products

• RDR and legacy assets

There has been much uncertainty about how legacy assets will be treated under RDR – the publication of FSA Paper p pPS12/3 has clarified the rules for both advisers and suppliers

Source: PS12/3 February 2012

Legacy Commission – the good

• Trail Commission can continue

bulk transfers

client moves adviser (must offer a service)

investment switches (life and pension)investment switches (life and pension)

• Group Pensions – existing schemes

commission on new members

commission on increments

What about group pension transfers?

Source: PS12/3 February 2012

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Trail commission some considerations

• “the trail commission generated from the legacy asset is generally regarded as a continued payment for the original advice that was provided pre-RDR.

If this is not the case and you had a pre-RDR agreement with your client that trail commission will be used to cover the cost of ongoing advice, then you

d t thi t t RDR d th t i d ineed to cease this arrangement post RDR and ensure that ongoing advice is provided under a newly created client agreement which states the adviser charge that will apply……there may be the option to offset your adviser

charge against any trail commission that you continue to receive”

• “the FSA has stated that simply reclassifying existing trail commission as an adviser charge “would not meet the requirement for an adviser to have a standard charging structure set out by the adviser himself or herself and to i thi t th li t b f idi d i t RDR””give this to the client before providing any advice post- RDR””

Sesame/Bankhall compliance factsheet: Trail commission and ‘legacy assets’ in a post RDR environment – April 2012

Legacy Commission – the not so good

• Legacy Plans – commission payable?

advised premium increment

non advised increment

indexation

• Legacy Plans – commission continues?

advised fund switch

advised fund switch (non life and pension)

lifestyle investment switch

DFM makes fund switch

Source:PS12/3 February 2012

• Justification for these changes is to avoid product bias

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What will it look like?

Policy commences Jan 2009 – initial commission and FBRC

£10,000 SP

Jan 2009

RP initial plus renewal commission

SP increment on initial adviser charge and ongoing adviser charge

£200 RPMar 2012

Jan 2009

£8,000 inc

Mar 2013

Initial adviser charge and ongoing adviser charge£80 rp inc

What about legacy products not enabling adviser charging?

18% 40% 11% 7% 24%Likelihood ofchoosing an

Do the FSA proposals make a different type of product bias?

13%

18%

41%

40%

14%

11%

9%

7%

23%

24%

Likelihood ofconsidering

transferring legacyproduct to alternative

product

choosing analternative product

Very likely Quite likely Quite unlikely Very unlikely Don't know

Source: NMG Consulting Nov 2011 based on 300 online surveys with IFAs

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What are advisers doing about this?

• I am writing in order to clarify your corporate strategy as it relates to RDR and in particular, the treatment of clients that we service under our agency.

• We are in the process of finalising our planning and strategy for RDR – and to inform our conclusions, would be most grateful for clarity around the following points:

1 Wh Ad i Ch i (AC) d l ff i 2013 ( d b f )?• 1. What Advisory Charging (AC) do you plan to offer in 2013 (and before)?

• 2. Are there any charging methods that you plan to specifically exclude?

• 3. What is your stance around the payment of legacy renewal commissions?

• 4. Are there any product lines or options that you do not plan to offer post RDR?

• 5. Are there any legacy products that will not be supported under your systems/infrastructure post RDR?........

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What are advisers doing about this?

• In addition to the above, can you please indicate your general state of RDR preparedness and what comfort you can provide us as an organisation that you will be fully operational and compliant (in respect of RDR requirements) in January 2013?

• …We are keen to engage and establish ways in which our respective operations can do business in the future – as I am sure you will appreciate, if we are unable to get clarity and transparency on future strategy/planning this will prove challengingclarity and transparency on future strategy/planning this will prove challenging.

• Received key account – 20th March 2012

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RDR - Prism

RDR - Prism

Full RDR charging

Every provider will review their existing products and decide aexisting products and decide a treatment for them

This will dictate your ability to be paid from the product for advice given post RDR

Products like stakeholder pensions are unlikely to facilitate adviser charging

Minimal

Treatment

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Agenda


• RDR and Product Design



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Pension – RDR compliant structure

Charge for administering the plan

Discrete Investment charges

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Adviser charge if taken from the product

Choice Flexibility Transparency

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SW Retirement Account

• RDR product structure

• No cross subsidy

• Clear competitive charges

• Back office integration

• Plan for life

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Pension – RDR compliant structure



18Choice Flexibility Transparency


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Retirement Account Structure & Investment Choice


Investment Trends – Centralised Investment Propositions

• Simple Lifestyle Approaches

• Fully governed portfolios

• Limited choice

• Distributor Selections

• Preferred Portfolios

• Distributor Influenced Funds

• Simple Risk profilers

• Low cost

• Discretionary Fund Managers

• Adviser or Network lead

• Wide range of costs

Both options can co-exist in an adviser Centralised Investment Proposition

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Governed Investment Strategies

GIS

Average case size - £43,000 = SW charge 0.35% plus GIS cost of 0.1%

Cost of Stakeholder Pension v’s RDR friendly Retirement Account

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Stakeholder Pension versus RDR charged pension plans

• Stakeholder pensions no longer low cost

• 23 out of 28 terms and premiums tested Retirement Account better charged than best priced stakeholder pension on thebest priced stakeholder pension on the market

• Many reasons to consider alternatives

• RU 64 still exists

• Pick up our full guide

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Retirement Account – RDR compliant structure





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Adviser remuneration – current shape

36% 11% 27% 14% 10% 1%Total

36%

35%

10%

17%

28%

24%

15%

11%

9%

13%

2%Wealth

Corporate

Initial commission Ongoing commission

Fund based remuneration Fees settled through comission offsetFund based remuneration Fees settled through comission offset

Fees invoiced direct to clients Other/don't know


How are advisers planning to facilitate adviser charging?

Lump Sum Investments

7%

via contract

h t

Regular Premium Investments

12%

46%

8%

25%

%cash accounton platform

fee invoiceddirectly to client

combination

don't know

41%

26%

12%

14%

don t know

10%11%


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Scaled

100% Allocation Interest free 1-5 years

Current

Limits set by SW

Post RDR

Factored so outlawed by RDR

Retirement Account – Remuneration Options

Flexible

Adviser charge is taken off before investment

Limits set by SW

Becomes Initial Adviser Charge (IAC)

For Regular premiums max upfront is one premium

Fund Based

Based on the whole value of the retirement account

Limits set by SW

Becomes Ongoing Adviser Charging (OAC) post RDR

No limits set by SW

Ad Hoc Fee Up to 3% per annum No limits set by SW

Not “asset” dependant

Fixed term adviser fees Not currently available Cash amounts paid from plan to adviser for life of plan or agreed term

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Scottish Widows Experience

Adviser Remuneration Shapes Retirement Account 2010

• 2011 figures illustrate that Factored accounted for 63%

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Source: Scottish Widows 2010

• 2011 figures illustrate that Factored accounted for 63%

• Advisers still not fully adopting RDR product structures

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Agenda


• RDR and product design



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Retirement Account Comparison Tool

• Simply compare any existing plan charges with Retirement Account

• Gets over FSI issues

• Try different commission options

• Produces report

• Minimal inputs

• Calculates existing plan riy

• Quick Go/No Go Decision

• Matches growth rate to the new quote

• Click through to live quotes

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*Note this does not replace the compliance requirement to use O&M for pension transfer business

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Simple to understand outputs

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Solves FSI issues in comparisons!

Report output

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Agenda


• RDR and product design



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Beyond RDR?

• Pressure on Individual Pension Market because of auto-enrolment

• Downward pressure on costs by Nest

• Increasing use of technology by consumers and advisersIncreasing use of technology by consumers and advisers

• Increasing client direct dealing

• Investment polarisation – low cost versus full ongoing investment offering

• Funds invested longer as people retire later

• Retirement Account flexible enough now and in the future to be a great value pension solution for your clients

• www.scottishwidows.co.uk/ra

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Call to action

• Consider whether plans you are recommending now are flexible enough for both you and the client to accommodate advice charges from the plan pre and post RDR

Test out the pension switching tool with your next pension benefit statement• Test out the pension switching tool with your next pension benefit statement

• Consider whether Governed Investment Strategies could form part of your investment proposition

• For more details contact your account manager or look at our web address www.scottishwidows.co.uk/ra

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This presentation represents Scottish Widows’ interpretation of current and proposed legislation and HM Revenue & Customs practice as at the date of publication - these may change in future.

This material is for use by UK Financial Advisers only. It is not intended for onward transmission to private customers and should not be relied upon by any other person.

Scottish Widows plc. Registered in Scotland no. 199549. Registered Office in the UK at 69 Morrison Street, Edinburgh, EH3 8YF. Tel: 0131Scottish Widows plc. Registered in Scotland no. 199549. Registered Office in the UK at 69 Morrison Street, Edinburgh, EH3 8YF. Tel: 0131 655 6000.

Scottish Widows plc is authorised and regulated by the Financial Services AuthorityOur FSA Register number is 191517.

As part of the Lloyds Banking Group, Scottish Widows is proud to be an Official Provider of the London 2012 Olympic and Paralympic Games.

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personal pensions to rdr and beyond…… · 31/05/2012 12 stakeholder pension versus rdr charged...

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