MEMBER OPTIONSMORE CHOICE FOR MEMBERS,LESS RISK FOR SCHEMES AND SPONSORS

1 APRIL 2014

Alan BakerMatthew DemwellGary Peterson

MERCER 2014 DB RISK WEBCAST SERIES

MERCER WEBCAST

Date Topic

6 March Risk transfer solutions – The beginning of the end …or the end of the beginning?

13 March Pension plan data – Why improving it benefits everyone

1 April Member options – More choice for members, less risk for schemes and sponsors

1 May Integrated solutions – Case studies in new approaches

15 May Investing for income – Using benefit cash flows in setting investment strategy

3 June Getting off the rollercoaster – How are pension schemes managing the volatility of their journey?

19 June Approaches to delivering long-term self-sufficiency

10 July Kick-starting your risk management programme – LDI without the tears

MERCER WEBCAST

Alan Baker Gary PetersonMatthew Demwell

George Osborne

MERCER WEBCAST

DB restrictions:legislation andscheme rules

Higher fundingtargets make

member optionsmore viable

Can be offered toall categories of

member

Code of Practiceand the Pensions

Regulator

Combine withother risk

managementoptions

Cost of de-riskinginvestments incurrent markets

MERCER WEBCAST

£3,750

£4,500£4,750

£0

£500

£1,000

£1,500

£2,000

£2,500

£3,000

£3,500

£4,000

£4,500

£5,000

Scheme pension ReFlex - no pensionincreases

ReFlex - no spousespension or increases

Ann

ualp

ensi

on£25,000

£17,500

£0

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

Scheme cash ReFlex cash

Tax

free

lum

psu

m +

Pre-retirementcommunication -

options

Memberapproachesretirement

FA helpline?Retirement

budget planner?

Annuity broking / FA support

Retirementquotation(DB/ DC)

Annuity

Incomedrawdown

Transfer to DC

Member takespension from scheme

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DB memberswith DC flexibility –increases, spouse’s

pension, cashpayments

Reduces DB risk

Higher tax-free cashlump sum

Funding /accounting

broadly neutral

favourable

Cash costrequirements

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EnhancedTransfer Values

50.153.3 53.3 55.9

77.4

0

10

20

30

40

50

60

70

80

90

Cash EquivalentTransfer Value

IFA Hurdle Value Accounting EnhancedTransfer Value

Buyout Value

Indi

vidu

alLi

abili

tyA

mou

nt(£

k)

Example Deferred Liability Values

For illustration only

For illustrationonly

Incentive of £10kto transfer out

(20% of £50ktransfer value)

Transfer £50kplus £10kenhancement topersonal pension

Turn down the offer

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DB memberswith DC flexibility –and pre-retirement

risk/return

Reduces DB risk /solvency debt

Lower take-up ratespost 2012 Code of

Practice

Funding /accounting

likely to bea P&L cost

EnhancedTransfer Values

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Pension IncreaseExchange (PIE)

For illustration only

£0

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

65 70 75 80 85 90 95 100

Current pension Revised pension

Improvedvalue

Age atdeath Break even Worse value

BEFORE: pension with non- statutoryincreases

AFTER: initially higher, non-increasingpension

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Immediate uplift topension income

Reduces DB risk –longevity and

inflation

Non-statutoryincreases

Funding /accounting impact

– likely to befavourable

Cash costrequirements

Code of Practice

Pension IncreaseExchange (PIE)

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Stepping stones tobuy-out in 13 years

Investmentreturns

Memberoptions

Employercontributions

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Budget proposals - DC• No need to buy annuities• Can take all as cash• Drawdown limits eased immediately

Timing• Consultation ends: 11 June 2014• Recess: 22 July 2014• Legislation: 6 April 2015• Slamming the door?

Budget options - DB• Ban all DB to DC transfers• Ban DB to DC transfers from all

(unfunded?) public sector schemes• DB to DC transfers permitted but

without access to the new DCflexibility

• Cap amount that a DB schememember can transfer to DC each year

• Any DB to DC transfer must beapproved by the DB scheme trustees

Things to consider• Which member options are of interest?• Do you expect to implement before

April 2015?• The risk that delaying might result in

losing the ability to access the existingflexibility

• The further information that willemerge in the period ahead, throughthe consultation and the outcome ofthe consultation

• Any concerns about the potential riskof retrospective legislation

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Close toimplementingETV, or ReFlexfor membersover age 55

Not done anysignificant

work onmemberoptions

Startedworking

towards ETVor ReFlex

If you believe there willbe an early andcomplete ban on DB toDC transfers

• Confirm strategy• Consider PIE and other

risk management options• Monitor Budget

consultation

• Carry on with an eye tothe Budget consultation

Member options are key for choice and risk management

In most other cases

“Dash for the line”or stop work

Review case by case(care re FA capacity)

MERCER WEBCAST

QUESTIONSPlease type your questions in the Q&A section of the toolbarand we will do our best to answer as many questions as wehave time for.

To submit a question while in full screen mode, use the Q&Abutton, on the floating panel, on the top of your screen.

CLICK HERE TO ASK A QUESTIONTO “ALL PANELISTS”

FEEDBACKPlease take the time to fill out thefeedback form at the end of this webcastso we can continue to improve. Thefeedback form will pop up in a newwindow when the session ends.

www.mercer.com/webcastsView past recordings and sign up forupcoming webcasts

Alan BakerPartner

alan.baker@mercer.com

Gary PetersonPrincipal

gary.peterson@mercer.com

Matthew DemwellPartner

matthew.demwell@mercer.com

MERCER WEBCAST

Still to come…

Date Topic

1 May Integrated solutions – Case studies in new approaches

15 May Investing for income – Using benefit cash flows in setting investment strategy

3 June Getting off the rollercoaster – How are pension schemes managing the volatility of their journey?

19 June Approaches to delivering long-term self-sufficiency

10 July Kick-starting your risk management programme – LDI without the tears

MERCER WEBCAST

And finally… Meet our DB Risk Experts

www.uk.mercer.com/db-risk

16

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