Bankhall Conference 2009 - Partnership

Martin Lines
Retirement Technical Manager
The Retirement Review
Bankhall
November 2009

Agenda
Minority Report?
Phased by the options?

Market size
USP
£1.7bn
Impaired Annuity
£1.9bn
Variable £0.4bn’
Investment-linked’
£1.2bn
Annuity
£14.7bn
Watson Wyatt In Retirement Study – predictions for 2009

Treating Customers Fairly
TCF outcome 4:
“Where consumers receive advice, the advice is suitable and takes account of their circumstances”.
Estimated % of individuals who could benefit from enhanced / impaired annuities?
40%

IFA Experience
"Retirement Solutions are able to achieve over 45% qualification for enhanced annuities from our clients because we assume that they will qualify and that we question and probe to identify whether this is the case”.
Mick Bradley, Retirement solutions Ltd, a member of Bankhall.

Agenda
Minority Report?

Ageing ‘retired’ population!
Income Drawdown / USP is 14 years old!
Personal Pension Phasing is 21 years old!

Many are already ‘in’ retirement!
Dark blue and ‘blank’ are potential Partnership clients.
What strategy do you have in place to ensure your business supports these people’s needs?
Source: National Statistics Online. By Age, April 2001, England and Wales

Client Reviews
Long-term care
Inflation
Inheritance
Product development
Fund Performance
Health
Moving home
Family responsibilities
State Pension
Marital Status
Legislation
Changes to GAD rates
Critical Yield

USP – example 1 - Lucy
Lucy commenced USP at age 52
Initial Fund value £230,000
Current fund value is £200,000
Lucy suffers from a serious illness
Lucy is a smoker
Has non-pension income producing assets
Looking to maximise income from pension
*Mycosis Fungoides

Playing your cards right?
* Source: SharingPensions.co.uk. 29 August 2009 ** The Exchange. Partnership rate. 3 September 2009
*** Source: invidion.co.uk. 3 September 2009. All figures are for illustration purposes only.

Enhanced Annuity Case Study
An enhanced Annuity via Partnership would provide:
£14,752
per annum
Fig with Value Protection?
Partnership enhanced rate 3/9/09

Put another way...
This is the equivalent of uplifting Lucy’s USP fund from £200,000 to...
£241,518
An extra £41,518!
How long would it take for 20% fund growth while taking an income?

Example 2 - Bob
Bob, aged 65 is a smoker
In May 2006, he took full PCLS from his pension
He did not need an income
He has a USP arrangement worth £100,000
His annual review is about to take place

Should Bob continue to defer or take an income?
Markets start to recover lost ground
Interest rates or bond yields go up giving better annuity rates
How long will this take?
How much annuity income will your client lose?

Impact of deferring - £100,000 fund value
Fund Value at 65 £100,000
Annuity available £6,888 pa
Projected fund at 66 £106,000
Annuity available £7,512
BUT would take 12 years to recover ‘lost’ income!
Based on:
A male smoker
£100,000 fund after tax-free cash with 100% ‘Value Protection’
Partnership Enhanced Annuity rates as at 30th September 2009

But what about death benefits?
Bob in USP to take advantage of death benefits
Now wants highest ‘sustainable’ guaranteed income for life
But can he retain death benefits?

Look Familiar? Lump sum death benefits year 1
Value Protected Enhanced Annuity
USP
£100,000
£100,000
£100,000 - £6,800* less 35% tax
= £60,580
£100,000 - £6,888 less 35% tax
= £60,522
*based on 100% GAD rate 14/8/09

Use of income stream
Value Protected Annuity
65% death benefit (less payments received)
Personal Pension Plan
For 3rd Party
Personal Pension Plan
100% death benefit
25% PCLS

Agenda
Minority Report?

Example - Phased
Objective - to leave as much money ‘uncrystallised’ as possible whilst still receiving a targeted income.
Maximise net income from ‘segments’ used
Retain death benefits on ‘uncrystallised’ funds

Tax efficiency
PCLS
Annuity
More reliance on annuity as client gets older
Tax may be subject to change in the future and depends on individual circumstances.

Example
Frank starts phasing benefits into annuities from age 60
He targets an income of £6,000
On the 4th annual review, it transpires that the client has contracted serious illness.
By year 4 he still has an uncrystallised fund of £117,008
Maintaining level of income still important
Wants to maximise death benefits
Could now qualify for enhanced annuity
Based on an initial fund value of £150,000 growth rate 6% on uncrystallised funds

Example – year 4 (age 63)
Client needs approximately £6,000 pa
Value of ‘segments’ crystallised £13,437
New ‘income’
required
£3,359
PCLS
Standard annuity rate 6.7%
£540 net
Existing
income
£2,100 net
£5,999
Annuity shown net of 20% tax

Example – year 4 (age 63)
Client needs approximately £6,000 pa
Value of ‘segments’ crystallised £12,926
New ‘income’
required
£3,231
PCLS
Because Frank qualifies for a higher annuity rate, an additional £511 remains ‘uncrystallised’
£668 net
Existing
income
£2,100 net
£5,999
Annuity shown net of 20% tax

The cumulative effect from year 4
Uncrystallised fund at age 70 using standard rates from year 4
£89,749
Uncrystallised fund at age 70 using enhanced rates from year 4
£99,254

If he qualified from outset..
Uncrystallised fund at age 70 using standard rates from year 4
£89,749
Uncrystallised fund at age 70 using enhanced rates from outset
£110,462

Why use enhanced annuity with phasing
More income available from each ‘segment’
Fewer segments crystallised
Retains more of 100% ROF
Could opt for value protection allows for 65% ROF on new ‘crystallised’ funds

The two minute change to your process - ‘At’ or ‘In’ retirement
Simply ask your clients three questions:
Do you smoke?
Are you currently taking prescribed medicine?
Have you ever been hospitalised due to a serious medical condition?

IFA Experience
" The common quotation form really helps and enables us to provide higher income to our clients and higher income to ourselves, an opportunity to maximise our income whilst being compliant and observing TCF - a win - win situation”.
Mick Bradley, Retirement solutions Ltd.

Thank you
Name: Martin Lines
Retirement Technical Manager
Partnership is a trading style of The Partnership Group of Companies, which includes: Partnership Life Assurance Company Limited (registered in England and Wales No. 05465261), and Partnership Home Loans Limited (registered in England and Wales No. 05108846).
Both companies are authorised and regulated by the Financial Services Authority. The registered office for both companies is Sackville House, 143-149 Fenchurch Street, London EC3M 6BN.

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