Transcript THE HOME OF THE PROFESSIONAL ADVISER NAME OF …

THE HOME OF THE
PROFESSIONAL ADVISER
PREPARING BUSINESS OWNERS FOR PENSION REFORM
GRAEME CARMICHAEL
BUSINESS DEVELOPMENT MANAGER
For adviser use only – not approved for use with clients
LEARNING OUTCOMES
To be able to demonstrate an understanding of:
The likely future use of
traditional retirement
solutions
The options available for
appropriate advice
considerations when
approaching retirement
flexibility
The creation and
maintenance of
sustainable incomes in
retirement
The advice
opportunities for adviser
businesses in the
current retirement
market
AGENDA
New World
Choices
Budget
Changes
Case Study
Regulatory
Aspects
Planning
With
Pension
Reform
Planning
Parameters
Longevity
Issues
BUDGET MARCH 2014
“Mr Deputy Speaker, what I am
proposing is the most far-reaching
reform to the taxation of pensions
since the regime was introduced
in 1921.”
George Osborne, Chancellor
Your business may not be
your pension…
BUSINESS OWNER’S PRIORITIES PRIOR TO RETIREMENT?
Client Perspective
Surviving to retirement
Being profitable to retirement
Auto Enrolment commitments
Personal planning and preparation
Adviser’s Perspective
Business owners owe it to themselves to ensure they
are in a position to take advantage of pension reform
Opportunities may appeal to their entrepreneurial background
Will need to be done in the hands of a professional adviser
How do you ensure your value exceeds their cost?
FREEDOM AND CHOICE – WHERE ARE WE NOW…?
Flexi-Access Drawdown
• No MPAA if cash only
• All new ID from April 2015
• Capped continues
Uncrystallised Fund
Pension Lump Sum
• Easier to administer than drawdown?
• Tax treatment cash/income
• MPAA
Guidance
• Impartiality, access and costs?
• MAS and TPAS
DB Transfers
• Funded and private schemes ok
• Advice opportunity?
Other aspects
• NRA link to SPA at 57 from 2028
• Pension death benefits tax
• New annuity flexibilities
NEW WORLD CHOICES
WHAT WILL PEOPLE DO WITH THEIR PENSION POT?
PROPERTY?
CARS?
HOLIDAYS?
RETIREMENT
INCOME?
vs
32% Property
19% Car
12% Debt
4%
Annuity
Source: Challenger Retirement income Research 2012
80%
buy annuities
PLANNING PARAMETERS
For adviser use only – not approved for use with clients
THE NEW GAME FOR ALL – CONNECT FOUR
Fund
YIELD
Income
Term
THE RISK OF RETIREMENT RUIN
WHEN DOES THE MONEY RUN OUT?
Income = 5% of starting pot
Increasing at 3.5% pa
80
86
80
85
89
7% pa returns after charges
No cap or reviews
20% loss in year 1
65
70
75
Sources: www.actuaries.org.uk: PCMA00/PCFA00 with 100% of medium cohort improvements
Moshe A Milevsky Feb 2006
90
LONGEVITY ISSUES…
For adviser use only – not approved for use with clients
EXPECTANCY OF LIFE EXPECTANCY…
Source: O’Brian, Fenn, and Diacon, 2003, self-estimated life expectancy
compared with GAD forecast life expectancy
DISTRIBUTION OF DEATHS: MALES OVER 60 IN 2010
83 = 4.2%
<83 = 49.7%
60
Source: ONS
>83 = 46.1%
83
Average Age of Death
110
REGULATORY ASPECTS
For adviser use only – not approved for use with clients
GUIDANCE
4.29
From April 2015 there will be no requirement for
consumers to ensure that the funds in their pension
last for the rest of their life.
However, we believe it is
important for consumers to
understand the impact of making
withdrawals over time on their
remaining savings and their ability
to go on making withdrawals
Current rules on income withdrawal address
sustainability over time.
COBS CHANGES-SUITABILITY
1 Capital erosion
2 Insufficient growth
3 Worse Rates?
4 Unsustainable income
5 There may be tax implications
FCA POSITIVE COMPLIANCE – DRAWDOWN SUMMARY
Drawdown can be
Extremely Useful
For the right client
Ensure they are
Reviewed
Regularly
Highly Personalise
Suitability Reports
Consider TFC
Requirements
Ensure Systems
are Effective
Failure to confirm
Client Objectives
Unclear Advice
Consider Income
Requirements
Consider all other
Options
Help Client make an
Informed Decision
CASE STUDY
For adviser use only – not approved for use with clients
TRADITIONAL RETIREMENT PLANNING…
Client Perspective
What is the annuity rate?
What is the impact of escalation?
Impact of spouse’s benefit?
Return to support asset-backed or drawdown rate?
Future Considerations
How do I understand the funding requirements required to achieve my plans?
How long will my retirement fund last?
What’s the maximum income I can take?
What return do I need to maintain my desired income?
How do I plan for final lump sum or legacy?
How do I plan for planned lump sums in retirement?
How does reducing my income in later life impact on estate planning?
How do I take account of life expectancy and remaining funds?
Wants
bridging
income
Balanced
investor
£325,000 pot
Kate
60
English
Assumptions: Yield 6.05% pa net of provider and ongoing adviser charges. 2% Initial adviser charge
KATE – NO VARIATION IN INCOME
Starting income £ 22,974
Potential problem
Source: Prudential
OBJECTIVES…
Bridging income
Maximise death benefits
Holiday of a lifetime/replace car
Inflation protection
Retain flexibility
KATE – BRIDGING INCOME
Starting income £ 12,000
Source: Prudential
KATE – BRIDGING INCOME
Rising to £24,000
Source: Prudential
KATE – ESCALATING INCOME 2%
Starting income £20,000
Source: Prudential
KATE – LUMP SUMS
Starting income £18,400
Source: Prudential
KATE – WITH VARIED INCOME STREAM?
Starting income £23,920
State Pension
Source: Prudential
Slowing down
Handset Question
How much demand do you expect from your clients for
retirement income modelling advice?
1.
2.
3.
Something we already provide
Something that will need to be increasingly
incorporated into client support
No particular demand from our clients
SUPPORTING YOUR DISCUSSIONS
SUMMARY
•
•
•
Pension Reform will create significant advice
opportunities with business owning clients
Pension provision outside of business assets will
continue to be vital
Professional advice is necessary to support the
extraction of value created by the Chancellor
LEARNING OUTCOMES
To be able to demonstrate an understanding of:
The likely future use of
traditional retirement
solutions
The options available for
appropriate advice
considerations when
approaching retirement
flexibility
The creation and
maintenance of
sustainable incomes in
retirement
The advice
opportunities for adviser
businesses in the
current retirement
market
IMPORTANT INFORMATION
Please bear in mind that, where applicable, taxation, legislation and
HMRC practice are all liable to change.
No reproduction, copy, transmission or amendment of this
presentation
may be made without written permission from Prudential.
www.pruadviser.co.uk