How can you help your employees get. pension world? Andrew Pennie May 2015

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How can you help your employees get

the best retirement outcome in the new

pension world?

Andrew Pennie

May 2015

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Pension freedoms..

C

ith

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Pension decumulation..

Decumulation

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What is wrong with current system?

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y

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Annuities don’t provide freedom to meet changing

retirement patterns

•

Annuities perceived as poor value

N t h th b t h !

• Not whether but when!

•

Pre-retirement strategies are misaligned

• 80-90% in default funds80 90% in default funds

• Default funds predicated on annuity purchase • BUT only 40% forecast to buy an annuity

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Default strategies no longer appropriate?

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Ann ities

SUITABILITY?

Annuities Cash-Out Flexi-Access

Members likely to adopt flexi-access drawdown will be

h

di

i

h

di

i

h

l

di

heading in the wrong direction in the years leading to

retirement

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Why don’t defaults work for flexi-access drawdown?

y

• Everybody’s retirement will be different

• Different needs, objectives, circumstances and risk tolerances

• Everybody’s profile of pension benefits will be different

• Different needs for cash and income throughout retirement

• By definition, therefore, everybody’s investment strategy for flexi-access drawdown should be different.

• Default drawdown strategies can give rise to a mismatch of assets • Could result in risk and financial loss

But default options needed for those who will not engage But default options needed for those who will not engage.

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Bespoke decumulation process..

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Target for tax

free cash

Transition to drawdown plan – mirror strategy

free cash

(growth and

contributions)

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Every member’s needs and risk profile will be

y

p

different

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Every member’s needs and risk profile will be

y

p

different

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Every member’s needs and risk profile will be

y

p

different

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Pre-retirement decisions for your employees

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p y

•

Which retirement income strategy is right for me?

• Annuity? • Drawdown?

• Annuity Drawdown? • Cash-out?

•

How should I invest to best achieve my goals?

D i k?

• De-risk?

• Maintain risk? • Increase risk?

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You don’t know what you don’t know..

y

“There are known knowns. These are things we know

that we know. There are known unknowns. That is to say,

there are things that we know we don't know. But there

are also unknown unknowns There are things we don't

are also unknown unknowns. There are things we don t

know we don't know.”

Donald Rumsfeld

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You don’t know what you don’t know.

y

Pension fund Age R ti t d t ? Retirement date? Marital status? Other pensions Oth i t t Other investments Debt Dependants

Objectives and plansj p Priorities

Attitude to investment risk Health

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Wake up packs are not working..

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In absence of detailed information wake-up packs must

cover all possible options

• Over-information • ConfusionCo us o

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Guidance guarantee will be too late for some

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Delivered 6 months before retirement

• too late to support pre-retirement decisions • Guidance only and therefore similar

problems to wake up packs.

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Main benefits:

• Help people understand benefits of • Help people understand benefits of

shopping around

• Help people understand implications of

cashing-out cashing out

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A more personalised approach is needed..

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• Which retirement solution is right for me?

• How validate my decision?

• How do I pick the right investments? • Am I on the right pathway?

• Where annuity (or cash out) validated, existing default strategies are relatively effective

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Helping your employees

p g y

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• Provide advice pre retirement

• Facilitate tailored investment

strategies

• Provide advice at retirement

• Facilitate transition to

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/

it

strategies

• Review default funds

• Provide education/support

drawdown/annuity

• Communicate changes

• Refer to Pension Wise

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How to achieve the best for your employees

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• Tackle the advice gap in the pre-retirement years

• Different means of engaging and educating e.g. online tools • More personalised approach

• Advice?

• As trustees/employers, regulated advice has huge advantages and reassurances

• Identify those who need an alternative to the default option(s)y p ( )

• This will likely be a minority

• Tailored strategy needed for best outcomes

• Sensible and consistent transition to post-retirement planning • Sensible and consistent transition to post-retirement planning

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How much?

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Advice can be expensive

• Group exercises cheaper but less beneficial than 1:1 advice

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£150 HMRC allowance for pension advice

• No P11D benefit and still a business expense • No P11D benefit and still a business expense

• ‘Focused advice’ solutions available at this price point

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Facilitate rather than pay?

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Helping members to make decisions..

Our ‘Annuity or Not’ tool involves 5 simple

steps giving a RED, AMBER or GREEN

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GREEN means an annuity is still likely to be suitable and a

free report is AMBER or GREEN

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Helping Members To Make Decisions

For AMBER or RED outputs members are

invited to book a free online consultation

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Our ‘Annuity or Not’ tool involves 5 simple steps giving a

RED, AMBER or _{online consultation}

RED, AMBER or GREEN result

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Online analysis – helping members look ahead

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Online analysis – helping members look ahead

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Summary

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• Pension decumulation is a process and never a one-off event

• Pre, at and post retirement

• Default strategies don’t work for flexi-access drawdown

• Wanting to use drawdown versus being able to do drawdown are not the same thing – feasibility?g g g y

• Everybody’s retirement will be different

• A more personalised approach is needed to achieve best outcomes • Guidance alone is insufficient

• Help is available and at a variety of price points