A Better Income from Retirement Planning

Just Retirement – Strictly Confidential1

A Better Income from

Retirement Planning

Peter Cantrell

Business Development Manager


Today we will discuss

The opportunity

Open Market Option - update

Options, risks and considerations at retirement

Profitable Advice

Grasping the opportunity


Handset Question 1

In the 5 year period between 2007 and 2012, the value of the “at retirement” market is forecast to have:

1. Decreased by 5%

2. Increased by 10%

3. Increased by 40%

4. Increased by 100%


0

10

20

30

40

50

60

Year

£b

Source Watsons In Retirement Survey 2008

Value of the At Retirement Market


1978

2002

2007

Introduction of OMO

FSA Regulation

Treasury Review

All retireesOMO %60%

30 years of progress?


Pre Budget Report – October 2007

Annual Report

onOMO

ClarifyTax

rules

Review of Wake up

Packs

Review of Transferdelays

Web basedtool

Pre BudgetReport2007

UPDATE!



www.pensionsadvisoryservice.org.uk

Web basedtool



www.pensionsadvisoryservice.org.uk



Review of Wake up

Packs


40% of “wake up packs” failing to meet regulatory requirements:

Failure to point out advantages of shopping around

Failure to mention enhanced or impaired rates

Not using GAR in illustrations (in house pension)

Little reference to the value of seeking advice



Review of Transferdelays


Delays found in 60% of cases reviewed

Caused by transferring pension firm in 26% of total reviewed and other parties in 36% of cases

“room for improvement on all sides”

ABI Initiative


The difference enhanced rates can make

Note: % increases on average of top 3 standard ratesSource: The Exchange 13/11/08 / Just Retirement 13/11/08

£4,392

£4,553

£4,878

Annual annuity income for a lump sum investment of £50,000

Male aged 65Just RetirementJust Retirement

Modest enhancement

Material enhancement

Severe enhancement

£3,785

£3,806

£3,824

StandardStandard annuity providersannuity providers

Provider A

Provider B

Provider C

+26%

+10%

+16%


Put another way…….For £50,000 a well known annuity provider quotes a single life male aged 67 income of

£3,334 per annum

Just Retirement enhanced annuity for the same 67 year old who qualifies for a modest enhancement £4,440.48 per annum

….or an annuity with a 75% spouses pension to a healthy 62 year old wife from Just Retirement of £3,765.84 per annum

….or a single life annuity increasing at 4% yearly, well above the BoE’s inflation target, from Just Retirement £3,511.80 per annum

….or a single life annuity with 100% value protection from Just Retirement of

£3,795.60 per annum


Prevalence of Diseases and Obesity (2004/5): % reporting at least one disease, by age band

Source: The 2004 English Longitudinal Study of Ageing: National Centre for Social Research. Note: Some reported conditions will be immaterial for mortality outcomes or ambiguous in diagnosis. However, other indicators exist and can be used (eg smoking status, cholesterol levels)

% Main Disease Groups

How many retirees might actually qualify?

Other chronic: chronic lung disease, asthma, arthritis, osteoporosis, cancer

(excl some skin), Parkinson’s

Cardio-vascular: angina, myocardial infarction, stroke, heart failure, heart murmur, abnormal heart rhythm, diabetes


Prevalence of Diseases and Obesity (2004/5): % reporting at least one disease, by age band

Source: The 2004 English Longitudinal Study of Ageing: National Centre for Social Research. Note: Some reported conditions will be immaterial for mortality outcomes or ambiguous in diagnosis. However, other indicators exist and can be used (eg smoking status, cholesterol levels)

0

5

10

15

20

25

30

35

40

52-54 55-59 60-64 65-69 70-74 75-79 80+

Male Female

% Obesity

Up to 40% are likely to

qualify for enhancement

How many retirees might actually qualify?


How many get the correct benefits?

Source: ABI and Watson Wyatt


3 Key Questions

If “Yes” answer complete a Short Medical Questionnaire

Additional Questionnaire (condition specific) if required

GP Report

Do you Smoke?

Are you taking Prescriptive Medication?

Have you been hospitalised for a Medical Condition?

A reminder of the process


Who are the main losers?

Only 10% of funds are > £50,000

Source: ABI 2008 data for 2007 annuity sales


Healthy

7.1%7.2%7.3%7.4%7.5%7.6%7.7%7.8%7.9%8.0%8.1%

65 66 67 68 69 70 71 72 73 74

Healthy

Today’s high OMO rates increase critical yields.Requires monitoring regularly when in USP

Yield based on return required to match relevant age annuity income to and at age 75

What about USP alternatives?


The Income Drawdown Process

1. Determine Income Level

4. Assess Risk Profile

3. Construct Investment Portfolio

2. Calculate Critical Yield

Enhanced annuity rate?


Today’s high OMO rates increase critical yields.Requires monitoring regularly when in USP

Yield based on return required to match relevant age annuity income to and at age 75

What about USP alternatives?


The Income Drawdown Review Process

Past Investment Performance

Outlook

Current Investment strategy

Gilt Yields

Income requirements

Attitude to risk

Changes in circumstances

Income Requirements

Critical Yield AssessRisk Profile

Construct Investment

Portfolio

Enhanced annuity rate?


Add in 1% p.a. for guaranteed income

High growth rate raises

doubts over ability to

match annuity income,

especially if enhancement

available.

Death benefit must be a significant

factor


Who can’t afford the risk?

Gross Earnings = £26,000

Basic State Pension = £ 4,700

Second Tier Pension, say = £ 5,000

Private income required = £ 7,600

Fund required (joint life increasing) = £200,000

£200,000 is not a large fund

£17,300 is not a large total income: many will need more

Despite appearances, this is not a wealthy client

Anything less cannot sustain a short-term shock

In these cases critical yield is not a factor


Value Protection

Clients in “poor health” can achieve income without

investment risk, plus return of capital in the event

of death before age 75.

Value Protection

Return of purchase price less income paid up to age 75

Proceeds taxed at 35%


Guarantees – The Cost

No Guarantee

5 Year Guarantee

10 Year Guarantee

100% Value Protection

£3,654

£3,639

£ 3,587

£ 3,419

Source: Just Retirement 24/11/08

Male age 60 - £50,000

Just Retirement – Strictly Confidential

Value Protection – Payment on Death

Death after 6 months

Death after 5 years

Death after 10 years

Death after 15 years

£1,710 £48,290

£21,388

£15,810

£17,095

£34,190

£51,285

£31,388

£32,905

£10,276

Tax

Tax

Tax

Male age 60 - £50,000

Annual income: £3,419


Uncertain economic climate

Pension Fund fallen in value

Leave fund invested in the hope that it will recover

View that annuity rates will improve if markets pick up

Deferring annuity purchase


Can you afford to forego this income?

Are there other assets that you can live off?

If so, for how long?

What is the risk that you need to draw your income at an even worse time?

Are you prepared to continue working?

If so – for how long?

Deferring clients – questions to ask


In December 1999, the FTSE100 peaked at 6930 – it has not reached this level since

The latest peak was at 6751 in June 2007 – 7 years later

From December 1999 to June 2007 annuity rates for single males declined by 18%

How long?


Is deferring the right option?

Impacts all aspects of at pensions planning at retirement increases risks associated with USP and some ‘third way’ products in retirement.

Just Retirement – Strictly Confidential

Male aged 65 - £50,000

Age of Client

Total Annuity income:-received starting at age 65:

Total Annuity income received starting at age 66:

Difference

65

£3,859

£0

-£3,859

66

£7,719

£ 4,169

-£ 3,550

68

£15,439

£12,504

-£ 2,934

75

£42,459

£41,683

- £ 775

78

£54,038

£54,188

+ £ 149

Source: The Exchange. Assumes Standard annuity rates

Assumed fund growth for deferral period 7% with an allowance of 1% for charges

Is deferring the right option?


Handset Question 2

1. I would like to receive a copy of Just Retirement’s USP Guide

2. I would like to receive a copy of Just Retirement’s Cost of Delay fact sheet

3. I would like to receive both the USP Guide and the Cost of Delay fact sheet

4. Nothing, thanks!


Buy An Annuity

A secure income for life

Not dependent upon the stock market

Options available:

Enhanced rates for up to 40% of clients

Lump Sum death benefit

Provision for Spouse / Dependents

Inflation proofing income

Guarantee periods


Standard Annuity Commission 1%Enhanced Bankhall/PMS Commission 1.5%

Flexible Commission

Funds up to £20,000 - £500 commission

Funds over £20,000 – up to 2.5% Flexible Commission up to a maximum of £10,000

Profitable Annuity Business


Best Standard Rate Just Retirement Enhanced Rate

£ 50

0 C

om

mis

sio

n

£ 3,897

£ 75

0 C

om

mis

sio

n

£ 1,

250

Co

mm

issi

on

£ 4,500 £ 4,463

Source The Exchange & Just Retirement 17/10/08

£566 more income

Flexible Commission - £50,000 fund


Grasp the Opportunity!

Prepare to be proactive in this market place

Plan to be profitable in this market place

Review your advice process for “at retirement”

Keep up to date with developments – join

Benefit from Treating Customers Fairly


Handset Question 3

1. I would be interested in an Annuity Referral Service

2. I would not be interested in an Annuity Referral

Service


Contact Us

Your next steps?

For more information, please contact:

IFA Sales Support 0845 302 2287

Email: [email protected]

Visit: www.justretirement.com

Documents

A Better Income from Retirement Planning