Personal Pensions to RDR and Beyond

Transcription

1 Personal Pensions to RDR and Beyond Robert Cochran As part of the Lloyds Banking Group, Scottish Widows is proud to be an Official Provider of the London 2012 Olympic and Paralympic Games The finishing line? The Olympics RDR Auto-enrolment t 2 1

2 Agenda The individual pension market and legacy assets RDR and Product Design Helping getting the transfer market moving Individual Pensions beyond RDR 3 Individual Pension Market Pension Type Stakeholder Pension Personal Pension SIPP Total PP & SIPP Total - other Total Pre- Retirement Market pretty flat Stakeholder pension sales down Source: ABI all figs are million APE 2011 Transfers account for just over 50% of individual pension sales How will all this existing business be affected by RDR? 4 2

3 Clarity around legacy assets RDR and commission From 31 st December 2012 firms are banned from receiving or from paying commission in relation to personal recommendations to retail customers on retail investment products RDR and legacy assets There has been much uncertainty about how legacy assets will be treated under RDR the publication of FSA Paper PS12/3 has clarified the rules for both advisers and suppliers Source: PS12/3 February 2012 Legacy Commission the good Trail Commission can continue bulk transfers client moves adviser (must offer a service) investment switches (life and pension) Group Pensions existing schemes commission on new members commission on increments What about group pension transfers? Source: PS12/3 February

4 Trail commission some considerations the trail commission generated from the legacy asset is generally regarded as a continued payment for the original advice that was provided pre-rdr. If this is not the case and you had a pre-rdr agreement with your client that trail commission will be used to cover the cost of ongoing advice, then you need to cease this arrangement post RDR and ensure that t ongoing advice is provided under a newly created client agreement which states the adviser charge that will apply there may be the option to offset your adviser charge against any trail commission that you continue to receive the FSA has stated that simply reclassifying existing trail commission as an adviser charge would not meet the requirement for an adviser to have a standard charging structure set out by the adviser himself or herself and to give this to the client before providing any advice post- RDR Sesame/Bankhall compliance factsheet: Trail commission and legacy assets in a post RDR environment April 2012 Legacy Commission the not so good Legacy Plans commission payable? advised premium increment non advised increment indexation Legacy Plans commission continues? advised fund switch advised fund switch (non life and pension) lifestyle investment switch DFM makes fund switch Justification for these changes is to avoid product bias Source:PS12/3 February

5 What will it look like? 10,000 SP Jan 2009 Policy commences Jan 2009 initial commission and FBRC 200 RP Mar 2012 RP initial plus renewal commission 8,000 inc Mar 2013 SP increment on initial adviser charge and ongoing adviser charge 80 rp inc Initial adviser charge and ongoing adviser charge What about legacy products not enabling adviser charging? Do the FSA proposals make a different type of product bias? Likelihood of choosing an alternative product 18% 40% 11% 7% 24% Likelihood of considering transferring legacy product to alternative product 13% 41% 14% 9% 23% Very likely Quite likely Quite unlikely Very unlikely Don't know Source: NMG Consulting Nov 2011 based on 300 online surveys with IFAs 5

6 What are advisers doing about this? I am writing in order to clarify your corporate strategy as it relates to RDR and in particular, the treatment of clients that we service under our agency. We are in the process of finalising our planning and strategy for RDR and to inform our conclusions, would be most grateful for clarity around the following points: 1. What Advisory Charging (AC) do you plan to offer in 2013 (and before)? 2. Are there any charging methods that you plan to specifically exclude? 3. What is your stance around the payment of legacy renewal commissions? 4. Are there any product lines or options that you do not plan to offer post RDR? 5. Are there any legacy products that will not be supported under your systems/infrastructure post RDR? What are advisers doing about this? In addition to the above, can you please indicate your general state of RDR preparedness and what comfort you can provide us as an organisation that you will be fully operational and compliant (in respect of RDR requirements) in January 2013? We are keen to engage and establish ways in which our respective operations can do business in the future as I am sure you will appreciate, if we are unable to get clarity and transparency on future strategy/planning this will prove challenging. Received key account 20 th March

7 RDR - Prism RDR - Prism Full RDR charging Minimal Treatment Every provider will review their existing products and decide a treatment for them This will dictate your ability to be paid from the product for advice given post RDR Products like stakeholder pensions are unlikely to facilitate adviser charging 7

8 Agenda The individual pension market and legacy assets RDR and Product Design Helping getting the transfer market moving Individual Pensions beyond RDR 15 Pension RDR compliant structure Charge for administering the plan Discrete Investment charges Adviser charge if taken from the product Choice Flexibility Transparency 16 8

9 SW Retirement Account RDR product structure No cross subsidy Clear competitive charges Back office integration Plan for life 17 Pension RDR compliant structure Charge for administering the plan Discrete Investment charges Adviser charge if taken from the product Choice Flexibility Transparency 18 9

10 Retirement Account Structure & Investment Choice Choice Flexibility Transparency 19 Investment Trends Centralised Investment Propositions Simple Lifestyle Approaches Fully governed portfolios Limited choice Simple Risk profilers Low cost Distributor Selections Preferred Portfolios Distributor Influenced Funds Discretionary Fund Managers Adviser or Network lead Wide range of costs Both options can co-exist in an adviser Centralised Investment Proposition 10

11 Governed Investment Strategies GIS Average case size - 43,000 = SW charge 0.35% plus GIS cost of 0.1% Cost of Stakeholder Pension v s RDR friendly Retirement Account 22 11

12 Stakeholder Pension versus RDR charged pension plans Stakeholder pensions no longer low cost 23 out of 28 terms and premiums tested Retirement Account better charged than best priced stakeholder pension on the market Many reasons to consider alternatives RU 64 still exists Pick up our full guide 23 Retirement Account RDR compliant structure Charge for administering the plan Discrete Investment charges Adviser charge if taken from the product Choice Flexibility Transparency 24 12

13 Adviser remuneration current shape Total 36% 11% 27% 14% 10% 1% Corporate 35% 17% 24% 11% 13% Wealth 36% 10% 28% 15% 9% 2% Initial commission Fund based remuneration Fees invoiced direct to clients Ongoing commission Fees settled through comission offset Other/don't know Source: NMG Consulting Nov 2011 based on 300 online surveys with IFAs How are advisers planning to facilitate adviser charging? Lump Sum Investments via contract Regular Premium Investments 7% cash account on platform 12% 25% 46% fee invoiced directly to client combination 26% 41% 8% 14% don't know 11% 10% Source: NMG Consulting Nov 2011 based on 300 online surveys with IFAs 13

14 Retirement Account Remuneration Options Scaled 100% Allocation Interest free 1-5 years Current Limits set by SW Post RDR Factored so outlawed by RDR Flexible Adviser charge is taken off before investment Fund Based Based on the whole value of the retirement account Ad Hoc Fee Not asset dependant Limits set by SW Limits set by SW Up to 3% per annum Becomes Initial Adviser Charge (IAC) For Regular premiums max upfront is one premium Becomes Ongoing Adviser Charging (OAC) post RDR No limits set by SW No limits set by SW Fixed term adviser fees Not currently available Cash amounts paid from plan to adviser for life of plan or agreed term 27 Scottish Widows Experience Adviser Remuneration Shapes Retirement Account figures illustrate that Factored accounted for 63% Advisers still not fully adopting RDR product structures Source: Scottish Widows

15 Agenda The individual pension market and legacy assets RDR and product design Helping getting the transfer market moving Individual Pensions beyond RDR 29 Retirement Account Comparison Tool Simply compare any existing plan charges with Retirement Account Gets over FSI issues Minimal inputs Try different commission options Produces report Click through to live quotes Calculates existing plan riy Quick Go/No Go Decision Matches growth rate to the new quote *Note this does not replace the compliance requirement to use O&M for pension transfer business 30 15

16 Simple to understand outputs Solves FSI issues in comparisons! 31 Report output 32 16

17 Agenda The individual pension market and legacy assets RDR and product design Helping getting the transfer market moving Individual Pensions beyond RDR 33 Beyond RDR? Pressure on Individual Pension Market because of auto-enrolment Downward pressure on costs by Nest Increasing use of technology by consumers and advisers Increasing client direct dealing Investment polarisation low cost versus full ongoing investment offering Funds invested longer as people retire later Retirement Account flexible enough now and in the future to be a great value pension solution for your clients

18 Call to action Consider whether plans you are recommending now are flexible enough for both you and the client to accommodate advice charges from the plan pre and post RDR Test out the pension switching tool with your next pension benefit statement Consider whether Governed Investment Strategies could form part of your investment proposition For more details contact your account manager or look at our web address 35 This presentation represents Scottish Widows interpretation of current and proposed legislation and HM Revenue & Customs practice as at the date of publication - these may change in future. This material is for use by UK Financial Advisers only. It is not intended for onward transmission to private customers and should not be relied upon by any other person. Scottish Widows plc. Registered in Scotland no Registered Office in the UK at 69 Morrison Street, Edinburgh, EH3 8YF. Tel: Scottish Widows plc is authorised and regulated by the Financial Services Authority Our FSA Register number is As part of the Lloyds Banking Group, Scottish Widows is proud to be an Official Provider of the London 2012 Olympic and Paralympic Games /11 18