Alico Wealth Management


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Alico Wealth Management

  1. 1. The Retirement Market A Key Opportunity for Advisers For Professional Adviser Use Only Stephen Hunter National Sales Director Ross Holloway National Accounts Director
  2. 2. At ‘retirement’ opportunity <ul><li>Driving factors: </li></ul><ul><li>DC Pension sales in late 1980s/early 1990s </li></ul><ul><li>Equity recovery in DC funds </li></ul><ul><li>Increasing longevity </li></ul>At retirement market (£bn) UK ‘at retirement’ market for financial products to increase by 60% in next 5 years from £14 billion to £23 billion Source: Watson Wyatt Press Release – UK – July 2009 Source: Watson Wyatt, July 2009
  3. 3. Age Population (thousands) Population (thousands) The ‘baby-boomers’ are beginning to retire… The market increase will be sustained Source: Population: by age and sex 2001 . Census, Office for National Statistics; Government Actuary's Department 500 500 1000 1500 2000 2500 1000 1500 2000 2500 0
  4. 4. At retirement; the issues <ul><li>Advisers </li></ul><ul><li>Regulation </li></ul><ul><li>TCF </li></ul><ul><li>RDR </li></ul><ul><li>Risk </li></ul><ul><li>Client relationships </li></ul><ul><li>Business profitability </li></ul><ul><li>Clients </li></ul><ul><li>Life Expectancy </li></ul><ul><li>Health </li></ul><ul><li>Annuity rates </li></ul><ul><li>Lifestyle </li></ul><ul><li>Relationships </li></ul><ul><li>Attitudes </li></ul><ul><li>Investment conditions </li></ul><ul><li>Inflation </li></ul>
  5. 5. The current market <ul><li>A chance to re-invent and grow… </li></ul>93% of people buy a lifetime annuity when they retire (460,000 people in 2008) – with no chance to change income levels, and poor death benefits 65% of people don’t use their Open Market Option 64% of people buying an annuity choose a Single Life Level Annuity to secure the highest starting income… that inflation will erode away 93% 65% 64% Source: ABI research paper No.8, 2008 | ABI New Business statistics 2008
  6. 6. The retirement landscape Investment Risk Mortality Risk Source: ABI New Business statistics 2008 Lifetime Annuities £12bn Drawdown £3bn
  7. 7. <ul><li>Significant and sustained increases in life expectancy </li></ul><ul><li>“ People are living longer and face a longer period of retirement, during which their income needs will be greater and more varied than those of previous generations.” </li></ul><ul><li>ABI Retirement Income Policy Paper. Time for Change: Seven proposals to improve DC pension benefits in retirement, January 2010. </li></ul><ul><li>“ Today, average life expectancy in the UK is increasing at more than five hours a day, every day.” </li></ul><ul><li>Rejuvenating ageing research. A report by the Academy of Medical Sciences, September 2009. </li></ul><ul><li>Changing employment and retirement patterns </li></ul><ul><li>“ Retirement is no longer an absolute switch from working life to retirement, but a phased one – likely to include either a longer working life or even a return to the workplace.” </li></ul><ul><li>ABI Retirement Income Policy Paper. Time for Change: Seven proposals to improve DC pension benefits in retirement, January 2010. </li></ul>Drivers for change
  8. 8. Annuity rate movements Source: The annuity bureaux 2009
  9. 9. Delaying annuitisation? When should you buy an annuity? Source: (25 September 2008) 70% higher Annuity rates could be lower in the future 50 £6,084 Level Annuity rates: single male, £100k, no guarantee £6,480 £7,008 £7,728 £8,832 £10,428 55 60 65 70 74
  10. 10. Enhanced annuities – the benefits of delay? Source: 10/09/09 £100,000 purchase price, level annuity
  11. 11. The retirement headache <ul><li>Inflation rate for average pensioner couple </li></ul>4.6% Outlook for inflation? Source: Bank of England, January 2010. CPI inflation projection based on constant nominal interest rates at 0.5% and £200 billion asset purchases. Source: Institute of Financial Studies (Press release 09/03/09) Single male pensioner 5.8% Single female pensioner 6.8%
  12. 12. Changing face of retirement <ul><li>“ Retirement is no longer an absolute switch from working life to retirement, but a phased one – likely to include either a longer working life or even a return to the workplace.” ABI, January 2010. </li></ul><ul><li>Clients aged 55 – 65 </li></ul><ul><li>Healthy </li></ul><ul><li>Active </li></ul><ul><li>Part time work </li></ul><ul><li>Parent(s) alive </li></ul><ul><li>Retain current property </li></ul><ul><li>Future largely unknown </li></ul><ul><li>Partner alive </li></ul><ul><li>Desire to do more </li></ul><ul><li>Expenditure still high </li></ul><ul><li>A very different retirement to 20 years ago </li></ul><ul><li>Clients aged 75+ </li></ul><ul><li>Health may have deteriorated </li></ul><ul><li>Less active </li></ul><ul><li>Complete retirement </li></ul><ul><li>Inheritance received </li></ul><ul><li>Property down-sized </li></ul><ul><li>Future more limited </li></ul><ul><li>May have lost partner </li></ul><ul><li>Desire to do less </li></ul><ul><li>Expenditure reduced </li></ul><ul><li>Has traditional ‘retirement’ moved here? </li></ul>
  13. 13. Time for change? <ul><li>Lifetime annuity is the default option for the majority </li></ul><ul><li>Clients to think carefully before taking an irrevocable decision </li></ul><ul><li>Why would a client lock themselves out of flexibility and future upside </li></ul><ul><li>Annuitisation at age 75 as the new default? </li></ul>
  14. 14. ABI Retirement Income Policy Paper – Time for Change on Retirement Income options <ul><li>This paper published 7 January 2010 discusses </li></ul><ul><li>Building a flexible and sustainable framework </li></ul><ul><li>Raising the current age requirement for buying an annuity or ASP from 75 to 80 </li></ul><ul><li>Allowing value protection payments to dependants of those who die after age 75 </li></ul><ul><li>Addressing the issue of ‘stranded pots’ by standardising trivial commutation limits for occupational and contract-based DC pensions </li></ul><ul><li>Introducing an exemption from the requirement to buy an annuity (or ASP) for retirement income products that provide a lifetime income guarantee </li></ul><ul><li>Increasing the maximum GAD income limit applied to ASPs from 90% to 120% </li></ul><ul><li>Reducing the tax rate on lump sum death benefits for annuities, Unsecured Pensions and ASP </li></ul><ul><li>Allowing consumers with small pension funds to amalgamate their funds with their spouse or partner’s pension savings to enable the purchase of a joint-life annuity </li></ul>
  15. 15. The retirement landscape Middle market Investment Risk Mortality Risk Lifetime Annuities £12bn Drawdown £3bn Source: ABI New Business statistics 2008
  16. 16. How the market has changed RISK lower higher Flexibility higher Lifetime Annuities Middle Market Products Unsecured Pension
  17. 17. Client objectives <ul><li>Cash now, income later </li></ul><ul><li>Fixed, secure income for life </li></ul><ul><li>Fixed secure (higher) initial level of income </li></ul><ul><li>Defer all or part annuity purchase </li></ul><ul><li>Maximise flexibility </li></ul><ul><li>Estate preservation </li></ul><ul><li>Keep investment control </li></ul><ul><ul><li>Maintain pension pot </li></ul></ul><ul><ul><li>Beat inflation </li></ul></ul><ul><ul><li>Investment growth </li></ul></ul><ul><li>Balanced against risks facing retirees </li></ul><ul><li>Investment performance and timing </li></ul><ul><li>Corrosive effects of inflation </li></ul><ul><li>Other economics, e.g. interest rates </li></ul><ul><li>Longevity </li></ul><ul><li>Health fade </li></ul>
  18. 18. Adviser objectives <ul><li>The beginning of a new client relationship </li></ul><ul><li>Increased demand for advice </li></ul><ul><li>Long term relationships - extending the ‘marriage’ to the client </li></ul><ul><li>Fees that reflect ongoing advice and support </li></ul>
  19. 19. Our view on retirement planning - the ‘Retirement Journey’ <ul><li>Four key phases: </li></ul><ul><li>Saving – thinking about how to spend retirement years, building up the funds needed to enjoy retirement to the full, deciding on a suitable investment strategy. </li></ul><ul><li>Consolidating – appraising retirement goals and saving plans, ‘tuning up’ investment strategy. </li></ul><ul><li>Planning - understanding requirements in detail, making choices about retirement savings. </li></ul><ul><li>Managing the retirement lifestyle – maximising and sustaining income, fulfilling chosen lifestyles, cushioning against unforeseen issues and events. </li></ul>30 – 40 years before retirement 15 - 20 years before retirement Within 5 years of retirement Earlier retirement years Later retirement years At Retirement Saving towards retirement Consolidation Planning Managing throughout retirement Building up funds through contributions Retirement renew Considering issues and options Adapting to changing circumstances
  20. 20. The Retirement Plan from the Select Portfolio PPS ‘account’ - Savings Income not linked to GAD limits Combined income not to exceed GAD limits Retirement Plan USP ‘account’ - Income To be invested, with GAD reviews every 5 years Short Term Annuity To provide a fixed income for a set term (min 1 year, max 5 years) No transfer value Select Investment Range Alico Choice, Managed Portfolios, Guaranteed, Structured Uncrystalised accumulation contract(s) USP Transfers Tax-Free Cash Lump sum of up to 25% of value of pension pot Lifetime Annuity Separate contract Ability to ‘drip feed’ (as a minimum) capital amount of £5k Income (Fixed) Income (Variable) Income (Fixed) After term, no value
  21. 21. <ul><li>“ Retirement may be an ending, a closing, but it is also a new beginning.&quot; </li></ul><ul><li>Thank You </li></ul>Alico Wealth Management is a trading style of American Life Insurance Company Limited (Alico), a private limited company incorporated with limited liability in Delaware, USA No. 0123730. Head Office: One Alico Plaza, Wilmington, Delaware, USA 19801. Registered in England No. BR000230. Branch Office: 22 Addiscombe Road, Croydon, CR9 5AZ. Authorised and Regulated by the Financial Services Authority (FSA Reference Number 139417). comp number 8261.  Expiry 15.01.2010.