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Momentum Employee Benefits Investments – With profit annuities training for Financial Advisors. Presenters: Linda Ritchie 4 November 2012. Agenda. Background Golden Income With-Profit Annuity Annuity Retailisation Conclusion. Background. What happens at retirement?.

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momentum employee benefits investments with profit annuities training for financial advisors

Momentum Employee Benefits Investments – With profit annuities training for Financial Advisors


Linda Ritchie

4 November 2012




Golden Income With-Profit Annuity

Annuity Retailisation


what happens at retirement

What happens at retirement?

Often the largest accumulation of wealth in an individual’s life

Financial Goals

Continuity of income and maintain standard of living

Leaving money as bequest

Very stressful period

Due to changes in life, maintain self worth and health

No longer fall under “wing” of employer

Important (sometimes daunting) decisions to be made

Individual often requires impartial/unbiased guidance or financial advice

what is there to choose from in the market

What is there to choose from in the market?

Take benefit in cash

Choose guaranteed annuity from insurer

Guaranteed to pay for life

Guarantees current level of pension (Level annuities);

Provide for future increases (With-profit annuities or fixed escalating);

Guarantees inflation increases (Inflation-linked annuities)

Buy a living annuity

Provides no guarantees

If money is depleted – no further income

If money is not depleted at death – remaining money reverts to


Combination of guaranteed and living annuity

financial advice

Financial Advice

Individual requires unbiased advice to choose the correct solution

Advisors need to provide “best advice” for retirees

Remuneration from selling living annuities greater than other annuities – living annuities are not always appropriate for all clients



Retirement Reform process


Purchase annuities

Emphasis on low cost solutions

Fund Trustees and Advisors are realising members left out in the cold at retirement date

the solution

The Solution

Selection of an appropriate annuity product to suit the needs of most members – still on voluntary basis

Obtain quotes from the various provider/s

Present the quote to retiree and the benefits of selecting the chosen product

Low cost option aligned with proposals for retirement reform

Can be implemented on a default annuity selection, no advice, no commission basis

Best product in the market in terms of increases

product features

Product features

Description – Provides regular pension for life as well as the opportunity to participate in investment and mortality profits via an annual pension increase.

Objective – To provide minimum guaranteed pension for life, aim to:

Declare competitive pension increases;

Avoid declaring zero pension increases; and,

Declare pension increases that keep pace with inflation over the long-term.

Risk profile – Moderate. Future increases are linked to the performance of the assets.

Our guarantee – Pension will never decrease. Each time an increase is awarded, the new higher amount is guaranteed for life.

golden growth s unique features

Golden Growth’s unique features

Uses dynamic hedging to accurately price and manage the product

All embedded investment guarantees priced accurately up front and no clawbacks from future bonuses

Funding level maintained at 100% due to dynamic hedging

No entry time dependence – no funding level cross subsidy at entry

Lower charges, including capital charge

Transparent pension increase formula based on weighted average of 6 years underlying asset performance

Greater exposure to growth assets and these are actively managed

Built in future increases

Leading to significantly enhanced expected bonuses

long term asset allocation in reference portfolio

Long term asset allocation in reference portfolio

Asset allocation drives bonuses

Aggressive allocation to equities

Total equity exposure of 60%

Bonds split between inflation-linked and conventional

High equity exposure improves the increase expectations over the longer term

drivers of future increases

Drivers of future increases

Future increases depend on

Return on underlying investments (1)

Explicit charges (2)

Implicit charges (3)

Chosen PRI (4)

Mortality profits (5)

Distribution of built-in increases (6)

Future increases ≈ (1) - (2) - (3) - (4) ± (5) + (6)

Typically only the price and 4 are used to compare WPA’s

drivers of future increases what differentiates ggwpa

Drivers of future increasesWhat differentiates GGWPA

Future increases depend on

Return on underlying investments (1) (Expected to be 0.64% higher than competitors)

Explicit charges (2) (0.7% lower than competitors)

Implicit charges (3) (generates 1.35% higher expected increases)

Chosen PRI (4)

Mortality profits (5)

Distribution of built-in increases (6) (0.96% higher expected increases)

Future increases ≈ (1) - (2) - (3) - (4) ± (5) + (6) = 3.65%

Typically only the price and 4 are used to compare WPA’s

how traditional market offerings claw back adverse performance from policyholder increases

How traditional market offerings claw back adverse performance from policyholder increases

increase comparison annual increases

Increase comparison (Annual increases)

Pension increase history compares well to competitors

Increases based on a 3.5% PRI

dynamic hedging

Dynamic Hedging

If you have a known set of cash flows and

If increases are explicitly based on some reference asset and

If we have information about the riskiness of the reference asset

Then you can accurately determine a market value of the cash flows and increases

Dynamic Hedging used to price and manage risks

Different from an expected value approach to pricing and managing risk

dynamic hedging1

Dynamic Hedging

Risk neutral pricing determines an accurate market price of guarantees

Prices the cost of non-negative increases up front

Allows more exposure to growth assets in the reference portfolio


No inter generation smoothing i.e. no cross-subsidy at inception

No conflict of interest between shareholders and policyholders

Reduced capital requirement means lower charges to policyholders

Metropolitan were the first to introduce this pricing technology in 2007

smoothing formula

6. Built-in increases

Smoothing formula

  • Momentum’s smoothing formula is fully transparent
    • The weighted average of the past 6 years returns on underlying assets


* The 2011 return is YTD to July

  • To compare Momentum’s level of built-in increases with a traditional competitor that has a bonus stabilisation reserve of zero after 6 years, you need to assume future returns will equal the PRI% p.a.
bonus increase for 2012

Bonus & Increase for 2012

2012 Bonus is 9.5%

2012 increases for the various PRI’s

benefit options

Benefit options

Spouses pension:

Spouses pension reversion chosen by the pensioner at retirement and in case of multiple spouses the pension will be divided amongst all the surviving spouses

Guarantee period:

Maximum of 15 years

Children's pension:

Provide children's pension up to the age of 18 - can be extended to 25 with proof of study

Lump sum death benefit

Bonus pension (13th cheque)

post retirement interest rate

Post Retirement Interest Rate

Maximum PRI is 3.5%

Consider it the minimum net investment return required to maintain a pensioners current level of income

The PRI is the level of investment guarantee provided by the insurer.

PRI (%) is CHOSEN by the pensioner to meet their needs- once the PRI is chosen it can’t be changed later on

Based on the PRI selected a guaranteed regular pension amount FOR LIFE is calculated e.g.

High PRI = high initial pension & low increases

Low PRI = low initial pension & high increases

product fees

Product Fees

Initial Administration Fee: 1% plus R174 during 2012 increasing by CPI every year.

Monthly Administration Fee: An amount of R52.50 per pensioner per month, during 2012 increasing by CPI every year. The monthly fee is in respect of ongoing administration functions.

Annual Fee: 1% p.a. and increases by 0.05% for every 0.5% of PRI above 2.5%. For example, for a 3.5% PRI the fee is 1.10%. This covers the capital charge, expense charge and asset management fee.

what is retailisation

What is Retailisation?

ABSA Consultants and Actuaries partners with an insurer to provide a selected annuity product to retiring members on retirement

Selection of an annuity product that is appropriate for most members at retirement

Retiring members have a good starting point for securing their retirement income

Cost effective solution for enable retiring member to achieve financial goals in retirement

The quotes and subsequent processes are streamlined between the insurer and, typically, the Fund administrator

how can momentum ebi assist

How can Momentum EBI assist?

We are experienced in the annuity retailisation process

Transnet and Alexander Forbes are some of our successes

We have a range of products to choose from

With-Profit Annuities

Inflation-Linked Annuities

Flexibility in methods for obtaining quotes

If preference for individual advice to members, remuneration can be fee-based or commission-based

what is required to implement retailisation

What is required to implement retailisation?

Choose the appropriate annuity product and quotation specifications

i.e. The financial planners/advisors

Discuss and implement the various processes

Quotation and initial communication

New business submission process

example fund s preselected quotation specifications

Example: Fund’s preselected quotation specifications

* Specifications have been selected as a default. Members may request some changes and we can quote based on their individual requirements.

information needed from the fund s administration team for quotations

Information needed from the Fund’s administration team for quotations

Pre-selected default quote specifications

The additional information needed is (can be supplied in an excel form):

Member’s name and surname


Date of birth

Date of retirement

Spouse date of birth

Capital Purchase amount

requesting quotes

Requesting quotes

There are three ways that quotes can be supplied

The options are:

Quotation requests can be e-mailed to Momentum's quotes team, who will respond in one working day web-based quotation system

Fund administrator login to

Automated interface - Build IT Webserver interface where Fund’s administration system seamlessly requests quotation from Momentum’s quotation system

The option selected is driven by expected quotation volumes, Fund administration system capabilities, administration resources available etc

cover letter

Cover letter

Fund and Advisor will need to decide on the detail in the letter to be sent out with the annuity quote to the member

once client has accepted quotation

Once client has accepted quotation

Take on requirements

  • Momentum requires the following information for all new pensioners in order to comply with the latest requirements from SARS. This is a legal requirement without which Momentum will be unable to process new business applications.

1. Initials, first two names and surname;

2. ID Number; (spouse’s ID number where applicable)

3. Passport number and country of issue (where no SA ID is available);

4. Date of Birth;

5. Spouse’s Date of Birth;

6. Income tax reference number;

7. E-mail address (where available);

8. Business, cell, home telephone and/or fax numbers;

9. Physical business, postal and residential address;

10. Directive numbers (where applicable);

11. Bank account details, including:

a. Bank account type;

b. Bank account number (into which the salary, pension or annuity is paid);

c. Bank Name;

d. Branch name and number;

e. Account holder name; and

f. Account holder relationship (either own, joint or third party).

  • The Fund will need to submit to Momentum’s quotes team:
  • Signed quotation;
  • Signed and completed application form;
  • Proof of payment of purchase amount;
  • Member’s take on requirements
retail annuity timeline

Retail annuity timeline*

* Fund needs to decide on the timeline to following

process flow chart

Process flow chart *

Forward client’s signed quote, proof of payment, application with take on requirements


Request member


Receive signed quote, application with take on requirements




annuity quotes team

Fund’s administration team

Retiring member

Send quote

1 working day


Attach letter &

quote & mail to client


Send acceptance letter & contract document


* Refer to the retail annuity timeline for timings

service level agreement

Service Level Agreement

To be entered into between ABSA C & A and Momentum

Clarifies responsibilities and service standards

eb annuities quotes team contact details

EB Annuities Quotes Team Contact Details

Quotes, queries and assistance.


Tel: 021 917-3010

annuity payment process

Annuity payment process

  • Once application form with supporting documents are submitted and purchase consideration paid
  • Annuity payment commences
communication to annuitants

Communication to annuitants

  • Welcome letter and contract at inception
  • Monthly remuneration advice
  • Annual tax certificates and annual pension increase letters
  • With-Profit Annuity – Feedback Reports twice a year
  • Support by a dedicated administration team


  • Significant value add to retiring member in securing retirement income
  • Low cost option
  • Comfort regarding welfare of retiring members-pursuit of best advice for financial planners


This presentation  should not be  regarded  as  advice.  Whilst all reasonable  care  has   been  taken  in  the  preparation  thereof, MMI Holdings Limited, its subsidiaries, including Momentum Group Limited and Metropolitan Life Limited, and its employees shall not be liable  for any loss, damage (whether direct or consequential) or expense of any nature which may be suffered as a result of or which may be attributable , directly or indirectly , to the use of or reliance upon it.

We suggest that you consult your financial advisor  before taking any decision based on this presentation.