mercer 2014 db risk webcast series member options · 2020. 3. 23. · less risk for schemes and...
TRANSCRIPT
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MEMBER OPTIONSMORE CHOICE FOR MEMBERS,LESS RISK FOR SCHEMES AND SPONSORS
1 APRIL 2014
Alan BakerMatthew DemwellGary Peterson
MERCER 2014 DB RISK WEBCAST SERIES
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MERCER WEBCAST
Date Topic
6 March Risk transfer solutions – The beginning of the end …or the end of the beginning?
13 March Pension plan data – Why improving it benefits everyone
1 April Member options – More choice for members, less risk for schemes and sponsors
1 May Integrated solutions – Case studies in new approaches
15 May Investing for income – Using benefit cash flows in setting investment strategy
3 June Getting off the rollercoaster – How are pension schemes managing the volatility of their journey?
19 June Approaches to delivering long-term self-sufficiency
10 July Kick-starting your risk management programme – LDI without the tears
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MERCER WEBCAST
Alan Baker Gary PetersonMatthew Demwell
George Osborne
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MERCER WEBCAST
DB restrictions:legislation andscheme rules
Higher fundingtargets make
member optionsmore viable
Can be offered toall categories of
member
Code of Practiceand the Pensions
Regulator
Combine withother risk
managementoptions
Cost of de-riskinginvestments incurrent markets
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MERCER WEBCAST
£3,750
£4,500£4,750
£0
£500
£1,000
£1,500
£2,000
£2,500
£3,000
£3,500
£4,000
£4,500
£5,000
Scheme pension ReFlex - no pensionincreases
ReFlex - no spousespension or increases
Ann
ualp
ensi
on£25,000
£17,500
£0
£5,000
£10,000
£15,000
£20,000
£25,000
£30,000
Scheme cash ReFlex cash
Tax
free
lum
psu
m +
Pre-retirementcommunication -
options
Memberapproachesretirement
FA helpline?Retirement
budget planner?
Annuity broking / FA support
Retirementquotation(DB/ DC)
Annuity
Incomedrawdown
Transfer to DC
Member takespension from scheme
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MERCER WEBCAST
DB memberswith DC flexibility –increases, spouse’s
pension, cashpayments
Reduces DB risk
Higher tax-free cashlump sum
Funding /accounting
broadly neutral
favourable
Cash costrequirements
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MERCER WEBCAST
EnhancedTransfer Values
50.153.3 53.3 55.9
77.4
0
10
20
30
40
50
60
70
80
90
Cash EquivalentTransfer Value
IFA Hurdle Value Accounting EnhancedTransfer Value
Buyout Value
Indi
vidu
alLi
abili
tyA
mou
nt(£
k)
Example Deferred Liability Values
For illustration only
For illustrationonly
Incentive of £10kto transfer out
(20% of £50ktransfer value)
Transfer £50kplus £10kenhancement topersonal pension
Turn down the offer
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MERCER WEBCAST
DB memberswith DC flexibility –and pre-retirement
risk/return
Reduces DB risk /solvency debt
Lower take-up ratespost 2012 Code of
Practice
Funding /accounting
likely to bea P&L cost
EnhancedTransfer Values
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MERCER WEBCAST
Pension IncreaseExchange (PIE)
For illustration only
£0
£5,000
£10,000
£15,000
£20,000
£25,000
£30,000
65 70 75 80 85 90 95 100
Current pension Revised pension
Improvedvalue
Age atdeath Break even Worse value
BEFORE: pension with non- statutoryincreases
AFTER: initially higher, non-increasingpension
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MERCER WEBCAST
Immediate uplift topension income
Reduces DB risk –longevity and
inflation
Non-statutoryincreases
Funding /accounting impact
– likely to befavourable
Cash costrequirements
Code of Practice
Pension IncreaseExchange (PIE)
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MERCER WEBCAST
Stepping stones tobuy-out in 13 years
Investmentreturns
Memberoptions
Employercontributions
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MERCER WEBCAST
Budget proposals - DC• No need to buy annuities• Can take all as cash• Drawdown limits eased immediately
Timing• Consultation ends: 11 June 2014• Recess: 22 July 2014• Legislation: 6 April 2015• Slamming the door?
Budget options - DB• Ban all DB to DC transfers• Ban DB to DC transfers from all
(unfunded?) public sector schemes• DB to DC transfers permitted but
without access to the new DCflexibility
• Cap amount that a DB schememember can transfer to DC each year
• Any DB to DC transfer must beapproved by the DB scheme trustees
Things to consider• Which member options are of interest?• Do you expect to implement before
April 2015?• The risk that delaying might result in
losing the ability to access the existingflexibility
• The further information that willemerge in the period ahead, throughthe consultation and the outcome ofthe consultation
• Any concerns about the potential riskof retrospective legislation
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MERCER WEBCAST
Close toimplementingETV, or ReFlexfor membersover age 55
Not done anysignificant
work onmemberoptions
Startedworking
towards ETVor ReFlex
If you believe there willbe an early andcomplete ban on DB toDC transfers
• Confirm strategy• Consider PIE and other
risk management options• Monitor Budget
consultation
• Carry on with an eye tothe Budget consultation
Member options are key for choice and risk management
In most other cases
“Dash for the line”or stop work
Review case by case(care re FA capacity)
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MERCER WEBCAST
QUESTIONSPlease type your questions in the Q&A section of the toolbarand we will do our best to answer as many questions as wehave time for.
To submit a question while in full screen mode, use the Q&Abutton, on the floating panel, on the top of your screen.
CLICK HERE TO ASK A QUESTIONTO “ALL PANELISTS”
FEEDBACKPlease take the time to fill out thefeedback form at the end of this webcastso we can continue to improve. Thefeedback form will pop up in a newwindow when the session ends.
www.mercer.com/webcastsView past recordings and sign up forupcoming webcasts
Alan BakerPartner
Gary PetersonPrincipal
Matthew DemwellPartner
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MERCER WEBCAST
Still to come…
Date Topic
1 May Integrated solutions – Case studies in new approaches
15 May Investing for income – Using benefit cash flows in setting investment strategy
3 June Getting off the rollercoaster – How are pension schemes managing the volatility of their journey?
19 June Approaches to delivering long-term self-sufficiency
10 July Kick-starting your risk management programme – LDI without the tears
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MERCER WEBCAST
And finally… Meet our DB Risk Experts
www.uk.mercer.com/db-risk
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