2015 wpl may 2015 260515

H E A L T H W E A L T H C A R E E R

N A V I G A T I N G T H E

M A Z E T O F R E E D O M

M E R C E R L I M I T E D

May 2015

Presenter: Mark Rowlands

PENSIONS PEOPLE VALUE FROM MERCER

F R E E D O M

Video clip(s)


A N E R A O F C H A N G E


AGE Driven by the employee 20

O N C E L I F E W A S S I M P L E

AGE Scheme NRA 60/65 20

Income

Income

THEN

NOW


P U T Y O U R S E L F I N T H E M E M B E R S ’ S H O E S


W H A T W I L L F R E E D O M M E A N ?

Free to use your cash as you want?

Free to make poor decisions?

Free to be abused by professional criminals?

Free to be overcharged?


S O C I A L D E M O G R A P H I C C H A N G E S A N D C H A L L E N G E S

How do we ensure effective design and education to support this process?

..increase in state

pensioners by

2030

50%

..of employers think they will see

greater demand for better benefit

provision

(Sources: Economist Intelligence unit and ONS)

43%

Increased Life Expectancy

81

86

85

89

MEN WOMEN

EMPLOYEE

EMPLOYEE STATE


W O R K F O R C E C H A N G E S A N D C H A L L E N G E S

How do we finance a longer retirement over a shorter period? What

has to change?

How will employers hold on

to people they need and exit

those they don’t?

How can we best support and help employers manage debt and stress?

Working people of State Pension age

and above (UK)

Reversal of working patterns

Cost of financial stress

(Source: StepChange Debt charity) (Source: ONS)

YE

AR

S

1950s 2000s

WORK

RETIRE

45

24

50

10 753,000

1.4 million

in 1993

in 2011

£2.3 billion

2.9 million people


P O L I T I C A L C H A N G E S A N D C H A L L E N G E S P E N S I O N S P O L I C Y O F T H E G O V E R N M E N T ?

More of the same? • Freedom • Choice • Empowerment Pension pledges (light in their manifesto) include: • Continuing to increase the state pension through the triple lock system (higher

of inflation, prices, or 2.5%) • Introducing a single-tier pension


U N D E R S T A N D Y O U R M E M B E R S H I P

50% of annuitants are taking their benefits at the selected retirement age.

1 in 6 retirees has an outstanding mortgage of more than £25,000

1 in 4 annuitants remains in employment

Source: Nationwide Building Society, Insurance Company Data


F R E E D O M A N D C H O I C E : W H A T H A V E W E S E E N S O F A R ?

• On 7th April Zurich took 677 calls, approximately 3 times their usual call flow;

• On 7th April Aegon saw an increase of just over 3,000 calls received compared to the first

day of the tax year in 2014;

• Call volumes were up 42% from 31 March 2015 with 40% of calls being for valuations and

quotes;

• NEST, because of its population, expect lots of people taking cash… but for larger pots

do not expect much annuity purchase;

• Dramatic increase in request for DB Transfers – cash is king!

26 May 2015


S P E N D I N G T H E S A V I N G S F U N D ?

26 May 2015


R E T I R E M E N T I N C O M E F R A M E W O R K D E F I N I N G T H E P R I N C I P L E S

• We WANT to give members what they NEED…

an adequate and sustainable income in retirement.

• But we also NEED to give them what they WANT…

comfort their money will last, minimal negative returns, flexibility.

• As such the foundations of the framework are based on the following:

The risk of income shortfall i.e. not having ‘enough’

The risk your money runs out before you do

The risk of severe negative returns

Adequacy

Sustainability

Member Behaviour


I N R E T I R E M E N T : S O U R C E S O F I N C O M E

Use a flexible combination of these…

...to finance varying levels of income and capital needs in later life

Flexibility to draw income or capital from retirement

arrangements

Income or capital from savings and other

sources (e.g. property)

State Pension

Continuing salary from one or more

employments A

ctu

al

Sp

en

din

g r

eq

uir

em

en

ts

Age

INCOME FLOOR

Active Retiree

Sedate Retiree

Frail Retiree


“Savings” phase

“Pre-retirement” phase

Retirement destination

M E R C E R F R A M E W O R K T O P R O T E C T M E M B E R S

In-retirement

INCOME IN-RETIREMENT

Cash

Variable income

Secured income

CRITICAL ENGAGEMENT

PHASE

Do it for me

Help me do it

Do it myself

TM


0%

20%

40%

60%

80%

100%

10 9 8 7 6 5 4 3 2 1 0

Years to Target Retirement Age

Equity (%)

DGF (%)

Annuity ProtectionFund (%)

0%

20%

40%

60%

80%

100%

10 9 8 7 6 5 4 3 2 1 0


Equity (%)

DGF (%)

InvestmentGrade Credit (%)Cash (%)

Annuity

Income drawdown Cash

0%

20%

40%

60%

80%

100%

10 9 8 7 6 5 4 3 2 1 0


Equity (%)

DGF (%)

DiversifiedRetirement Fund (%)

Cash (%)

U S I N G T A R G E T R E T I R E M E N T F U N D S ( T R F ) T O

E A C H D E S T I N A T I O N


S M A R T P A T H ™ - D C F R A M E W O R K F O R A L L Y O U R M E M B E R S

PLANNING EXECUTION

SPENDING

Harry needs to “save more!”

Sade needs to “Choose a destination”

Brian needs to “Select optimum vehicle”

Dame Vera needs to “Take advice”

£ Growth fund

Cash

Variable income

Secured income

Critical engagement phase

Spending in retirement

ST

RA

TE

GY

AN

D

PR

OD

UC

T S

ET

E

NG

AG

EM

EN

T A

ND

C

OM

MU

NIC

AT

ION

S


R U N N I N G A P E N S I O N S C H E M E I S

G E T T I N G H A R D E R

IMPLEMENTING SOLUTIONS DECISION – ADVISORY OR DELEGATED?


T H E R E S U R G E N C E O F M A S T E R T R U S T S

Originated

in 1950’s

NEST & People’s Pension

AE Oct 2012 driven

demand

Reports say there are

around 100 but reality c50

Strategic solutions for

deferred populations

and thru-retirement services

Increase in regulation

and legislation

due to poor governance

(DC)

Total delegation

removes governance and reduces

costs

Mercer’s framework has 124

clients / £6b assets

“1 in 4 DC members will be in a Master Trust by 2024” - Professional Pensions (Jan 2015)


T H E M E R C E R M A S T E R T R U S T F R A M E W O R K A N E X A M P L E – O T H E R V E R S I O N S A R E A V A I L A B L E !

INDEPENDENT

TRUSTEE

MERCER GOVERNANCE & OVERSIGHT

Employer

1

Employer

2

YOUR

EMPLOYER Employer

3

Employer

4

INVESTMENT ADVISER

TO TRUSTEE

Each employer’s arrangement is a separate section within the Master Trust.


D E L I V E R I N G A N E F F I C I E N T S C H E M E A N D G O O D O U T C O M E S : A D V I S O R Y O R M A S T E R T R U S T ?

26 May 2015

Expertise

Time Needs of members

Advisory Full


A N E R A O F C H A N G E

Agree

your

strategic

approach

Purpose of the scheme

Interaction with wider people and benefit strategy

Help and protect members from Freedom abusers

Choose how to implement based on your requirements

26 May 2015

PENSIONS PEOPLE VALUE FROM MERCER 22

2015 wpl may 2015 260515

Documents