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Fixed Term Annuities A Smith | LV= Key Account Manager DATE

For financial advisers only Not for use with customers. Fixed Term Annuities A Smith | LV= Key Account Manager DATE. Agenda. At-retirement market landscape Giving clients more options in retirement: The case for Fixed Term Annuities

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Fixed Term Annuities A Smith | LV= Key Account Manager DATE

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  1. For financial advisers only Not for use with customers Fixed Term Annuities A Smith | LV= Key Account Manager DATE

  2. Agenda • At-retirement market landscape • Giving clients more options in retirement:The case for Fixed Term Annuities • Fact and Fiction:Bringing clarity to Fixed Term Annuities • LV= Fixed Term Annuity product overview • Case studies and sales opportunities 2 2

  3. For financial advisers only Not for use with customers Fixed Term Annuities The At-Retirement market landscape 3

  4. At-Retirement market landscape Overview: annuity -vs- drawdown 12% 10% 78% Illustrative only, not to scale Source : ABI . New business stats 2012 (12 months) 4

  5. At-Retirement market landscape Rise of the ‘middle market’ ‘Middle Market’ Lifetime Annuities Enhanced Annuities Drawdown With Profit Annuities Investment Linked Annuities Flexible Annuities Fixed Term Annuities Variable Annuities Illustrative only, not to scale 5

  6. At-Retirement market landscape Retirement – it’s not what it used to be • Longevity • Attitudes • Working patterns 6

  7. At-Retirement market landscape Longevity – life expectancy at age 65 17.8 50 years ago Years 20 17 50 years ago 20.4 Source: ONS Health Expectancies at Birth and at age 65 in the UK, 2008-2010 7

  8. At-Retirement market landscape Changing needs and attitudes pay-day lenders .com 24% the amount 1 in 4 people aged 50-64 will need to save before retirement to get the income they expect percentage of people entering retirement with unsecured debt Sources: National Association of Pension Funds, Bank of England, Primetime Retirement 8

  9. At-Retirement market landscape Changing working patterns Female Average Years > EXIT 6.2 Male 4.3m people aged 50+ who had retired but since returned to work the average number of years people expect to have to work beyond State Retirement Age (men expect to work longer) Source: LV= Working Late Index, 2012 9

  10. For financial advisers only Not for use with customers Fixed Term Annuities Giving clients more options in retirement 10

  11. Giving clients more options in retirement The case for Fixed Term Annuities • In an ideal world: • Many clients would want GUARANTEES and CERTAINTY… • …CHOICE and CONTROL • Can they have it all? 11

  12. Giving clients more options in retirement The case for Fixed Term Annuities A lifetime income BUT… ...a lifetime lock-in Roughly 90% of people buy a Lifetime Annuity when they retire BUT… What if health changes? What if rates change? What if circumstances change? 12

  13. Giving clients more options in retirement The case for Fixed Term Annuities A lifetime income BUT… ...a lifetime lock-in Roughly 90% of people buy a Lifetime Annuity when they retire BUT… Could a Fixed Term Annuity be the answer? What if health changes? What if rates change? What if circumstances change? 13

  14. Giving clients more options in retirement The case for Fixed Term Annuities • A Fixed Term Annuity gives: • CONTROL, with a GUARANTEED outcome • CONTROL of death benefits • Future CHOICE • CERTAINTY 14

  15. Fixed Term Annuities How do they work? Drawdown product Regular income, e.g.: Monthly in arrears/advance etc Escalation options available £Pension Fund £Guaranteed Maturity Lump sum £ £ £ £ £ £ Fixed Term (typically 3-25 years) £PCLS Annuity product Or transfer from existing Drawdown (Not OMO) 15

  16. Fixed Term Annuities How do they work? Maturity lump sum is known from outset and not subject to investment performance risk Drawdown product Regular, income, e.g.: Monthly in arrears/advance etc Escalation options available £Pension Fund £Maturity lump sum £ £ £ £ £ £ Fixed Term (3-25 years) £PCLS Annuity product Or transfer from existing Drawdown (Not OMO) 16

  17. Fixed Term Annuities How do they work? The higher the income chosen at outset, the lower the maturity value… annuities £Income £0 £Max £Maturity £Min £Max 17

  18. Fixed Term Annuities How do they work? The higher the income chosen at outset, the lower the maturity value and vice versa £Income £0 £Max £Maturity £Min £Max 18

  19. Fixed Term Annuities How do they work? Income and Maturity Lump Sum will also be affected by term and any death benefit options selected The higher the income chosen at outset, the lower the maturity value and vice versa £Income £0 £Max £Maturity £Min £Max 19

  20. Risks • Lifetime Annuity: • Future annuity rates may be higher • Health may get worse but no way to access enhanced rates • Circumstances may change but client is locked in to one shape of income • Inflation – can eat away at fixed income • Death benefit options are not as good as Drawdown-style options • Fixed Term Annuity: • Future annuity rates may be lower (so maturity value might not be able to sustain income) • GAD might restrict future income • Enhanced rates might not be available or may be lower in the future than today • Does not provide a guaranteed lifetime income 20

  21. For financial advisers only Not for use with customers Fixed Term Annuities Fact and Fiction – bringing clarity to Fixed Term Annuities 21

  22. Fact and Fiction Bringing clarity to Fixed Term Annuities • A Fixed Term Annuity could benefit a client if: • Annuity rates go up in the future • Their health gets worse in the future • Their circumstances change in the future (e.g. divorce, death of a spouse) But by how much do these things have to change What does the client have to believe… 22

  23. A data driven, evidence based illustrative analysis of the potential for these products to deliver real value in a series of different circumstances. 23

  24. Likelihood of a Fixed Term Annuity (FTA) achieving ‘economic equivalence’ or higher compared to a Lifetime Annuity (LTA) given changes to annuity pricing yields Increases in gilt yields, assuming these translate into improvements in annuity rates... ...could make purchasing a Fixed Term Annuity a successful strategy for many people. Source: LV= Fixed Term Annuity Fact and Fiction Report, 2012 24

  25. Likelihood of a Fixed Term Annuity (FTA) achieving ‘economic equivalence’ or higher compared to a Lifetime Annuity (LTA) for different combinations of age and level of benefit Where there is a reasonable age gap between the applicant and the spouse, or where the spouse’s pension is higher than 50%, then, in many cases, the fixed term route could provide a higher income Source: LV= Fixed Term Annuity Fact and Fiction Report, 2012 25

  26. Likelihood of a Fixed Term Annuity (FTA) achieving ‘economic equivalence’ or higher compared to a Lifetime Annuity (LTA) based on a subsequent adverse medical diagnosis Deterioration in health during the Fixed Term can also lead to a superior outcome… ...more serious conditions are likely to produce a better financial outcome relative to a Lifetime Annuity. Source: LV= Fixed Term Annuity Fact and Fiction Report, 2012 26

  27. Fact and Fiction Comparison calculator • A unique tool: • Comparison charts • Customised scenarios • Print/download graphs 27 27

  28. For financial advisers only Not for use with customers Fixed Term Annuities LV= Product overview 28

  29. Fixed Term Annuities LV= Product overview • Our Protected Retirement Plan offers: • Terms of 3-25 yrs • Income options at outset • Guaranteed Maturity Value at the end of the term • Choice of Death Benefits • Flexible remuneration options • PLUS… 29

  30. Fixed Term Annuities LV= Product overview • Our Protected Retirement Plan also offers: • 30 day quote guarantee period. • Rate Match facility • Money Where Our Mouth Is • PLUS… 30

  31. Fixed Term Annuities LV= Product overview • Unique Flexible Drawdown option • Maximise income • IHT planning • Death benefit planning • PLUS… 31

  32. Healthy Life Expectancy (HLE) at age 65 Males and females 10.1 7.6 50 years ago Years 20 10 11 17 50 years ago 11.7 8.7 HLE: Number of years spent in very good or good health Source: ONS Health Expectancies at Birth and at age 65 in the UK, 2008-2010 33

  33. Healthy Life Expectancy (HLE) at age 65 Males and females Your clients could spend up to half of their retirement in poor/ill health 10.1 7.6 50 years ago Years 20 10 11 17 50 years ago 11.7 8.7 HLE: Number of years spent in very good or good health Source: ONS Health Expectancies at Birth and at age 65 in the UK, 2008-2010 34

  34. LV= Fixed Term Annuity Death Benefit Options Overview 3 4 1 2 Dependant’s Benefit Break Clause Value Protection Guarantee Period Shared Appreciation • Income continues to be paid to spouse/partner or dependant at the specified rate • At end of the term, they receive same %age of GMV • Client can leave the contract early if spouse/partner or financial dependant dies • Could use fund to buy single life annuity • Provides lump sum (initial investment less income paid) • Spouse/partner could use to buy income in their own right • Remaining income paid as a lump sum* • If in combination with Dependant’s Benefit, income is paid for remaining period of the guarantee 35

  35. LV= Fixed Term Annuity Death Benefit Options Overview 3 4 1 2 Dependant’s Benefit Break Clause Value Protection Guarantee Period Shared Appreciation • Income continues to be paid to spouse/partner or dependant at the specified rate • At end of the term, they receive same %age of GMV • Client can leave the contract early if spouse/partner or financial dependant dies • Could use fund to buy single life annuity • Provides lump sum (initial investment less income paid) • Spouse/partner could use to buy income in their own right • Remaining income paid as a lump sum* • If in combination with Dependant’s Benefit, income is paid for remaining period of the guarantee 36

  36. LV= Fixed Term Annuity Death Benefit Options Overview 3 4 1 2 Dependant’s Benefit Break Clause Value Protection Guarantee Period Shared Appreciation • Income continues to be paid to spouse/partner or dependant at the specified rate • At end of the term, they receive same %age of GMV • Client can leave the contract early if spouse/partner or financial dependant dies • Could use fund to buy single life annuity • Provides lump sum (initial investment less income paid) • Spouse/partner could use to buy income in their own right • Remaining income paid as a lump sum* • If in combination with Dependant’s Benefit, income is paid for remaining period of the guarantee 37

  37. LV= Fixed Term Annuity Death Benefit Options Overview 3 4 1 2 Dependant’s Benefit Break Clause Value Protection Guarantee Period Shared Appreciation • Income continues to be paid to spouse/partner or dependant at the specified rate • At end of the term, they receive same %age of GMV • Client can leave the contract early if spouse/partner or financial dependant dies • Could use fund to buy single life annuity • Provides lump sum (initial investment less income paid) • Spouse/partner could use to buy income in their own right • Remaining income paid as a lump sum* • If in combination with Dependant’s Benefit, income is paid for remaining period of the guarantee 38

  38. LV= Fixed Term Annuity Death Benefit Options Overview 3 4 1 2 Dependant’s Benefit Break Clause Value Protection Guarantee Period Shared Appreciation • Income continues to be paid to spouse/partner or dependant at the specified rate • At end of the term, they receive same %age of GMV • Client can leave the contract early if spouse/partner or financial dependant dies • Could use fund to buy single life annuity • Provides lump sum (initial investment less income paid) • Spouse/partner could use to buy income in their own right • Remaining income paid as a lump sum* • If in combination with Dependant’s Benefit, income is paid for remaining period of the guarantee 39

  39. LV= Fixed Term Annuity Death Benefit Options Value Protection Lump sum death benefit: Net investment – Income taken Death of client £Fund Term • What happens next? • Beneficiary can choose: • Lump sum death benefit (less tax, currently 55%) • Annuity purchase (potentially an enhanced annuity if health has deteriorated) • Fixed Term Annuity/Drawdown 40

  40. LV= Fixed Term Annuity Death Benefit Options Dependant’s Benefit Lump sum death benefit: None, plan runs to maturity with income recalculated based on Dependant’s age, rates and fund value Death of client £Fund Term • What happens next? • At maturity, Dependant receives maturity lump sum and can purchase an income: • Based on their age at that point • Based on annuity rates/gilt yields at maturity • Potentially an enhanced annuity if health has deteriorated 41

  41. LV= Fixed Term Annuity Death Benefit Options Guaranteed Period Lump sum death benefit: Balance of unpaid income,less tax (currently 55%) Death of client £Fund Term What happens next? Beneficiary can use the lump sum for any purpose 42

  42. For financial advisers only Not for use with customers Fixed Term Annuities Case studies and sales opportunities 43

  43. Fixed Term Annuities (FTAs) Case studies and sales opportunities • Who might FTAs be suitable for? • Healthy retirees • ‘Nearly healthy’ (minor enhancements) • Those averse to investment risk • Those who don’t need an income right now • Those who are retiring in stages (e.g. part-time employment) • Those looking to preserve wealth • Those wary of ‘lifetime lock-in’ 44

  44. Fixed Term Annuities Case study 1 • Mr Jones • Aged 60 and single • Currently slightly overweight and high blood pressure • Looking to bridge income up to State Retirement Age to reduce working hours • No dependants so chooses to take no death benefits to maximise Guaranteed Maturity Value Client case study PDF available from www.lv.com/adviser 45

  45. Fixed Term Annuities Case study 1 • Mr Jones • Aged 60 and single • Currently slightly overweight and high blood pressure • Looking to bridge income up to State Retirement Age to reduce working hours • No dependants so chooses to take no death benefits to maximise Guaranteed Maturity Value At maturity is diagnosed with worsening blood pressure and angina and qualifies for an enhanced annuity. Client case study PDF available from www.lv.com/adviser 46

  46. Fixed Term Annuities Case study 2 • Mr Shah • Aged 74 and now widowed • Has secure pension income to meet the Minimum Income Requirement for Flexible Drawdown, including dependant’s income from late wife’s pension • Has £100,000 un-crystallised pension fund • Takes £25,000 tax free cash and buys a PRP with a Nil Maturity Value over a 3 year term Client case study PDF available from www.lv.com/adviser Tax depends on individual circumstances and is subject to change 47

  47. Fixed Term Annuities Case study 2 • Mr Shah • Aged 74 and now widowed • Has secure pension income to meet the Minimum Income Requirement for Flexible Drawdown, including dependant’s income from late wife’s pension • Has £100,000 un-crystallised pension fund • Takes £25,000 tax free cash and buys a PRP with a Nil Maturity Value over a 3 year term • He is able to gift monies to his children: • 7 year Potentially Exempt Transfers • 40% potential IHT v 55% lump sum death tax. Client case study PDF available from www.lv.com/adviser Tax depends on individual circumstances and is subject to change 48

  48. Fixed Term Annuities Case study 3 • Mr & Mrs Ledger • Married, both in early sixties • Wife diagnosed with cancer • Wants to maximise income (at the expense of Guaranteed Maturity Value) • Wife dies during the term of the Protected Retirement Plan Client case study PDF available from www.lv.com/adviser 49

  49. Fixed Term Annuities Case study 3 • Mr & Mrs Ledger • Married, both in early sixties • Wife diagnosed with cancer • Wants to maximise income (at the expense of Guaranteed Maturity Value) • Wife dies during the term of the Protected Retirement Plan Client able to use maturity value to meet changed needs. Client case study PDF available from www.lv.com/adviser 50

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