DB MEMBER OPTIONS INCREASING MEMBER CHOICE, REDUCING SCHEME RISK

Transcription

1 HEALTH WEALTH CAREER DB MEMBER OPTIONS INCREASING MEMBER CHOICE, REDUCING SCHEME RISK MARKET DEVELOPMENTS, EFFECTIVE DELIVERY 28 June 2016 Alan Baker Matthew Demwell Gary Peterson

2 TODAY S WEBINAR MARKET DEVELOPMENTS Popular member options Key drivers EFFECTIVE DELIVERY At-retirement member support Understanding your member data Transfer values: finding the sweet spot Making buy-in / buy-out more affordable Q & A 2

3 Market developments (C)

4 MARKET DEVELOPMENTS POPULAR MEMBER OPTIONS PIE (PENSION INCREASE EXCHANGE) ReFlex (RETIREMENT FLEXIBILITY) ETV (ENHANCED TRANSFER VALUES) SMALL POTS (TRIVIAL COMMUTATION ETC) Exchange future annual increases for a higher income now Transfer out of the scheme and re-shape benefits on retirement As ReFlex Exchange small pension for a cash lump sum Nonpensioners Younger ü ü Older ü ü ü Pensioners ü ü What s in it for members? Higher income in more active retirement years Re-shape benefits to meet member s own requirements Same as ReFlex Cash sum seen as more valuable than small pension What s in it for the scheme / sponsor? Reduce inflation, interest rate and longevity exposure Reduce cost of hedging or transferring liabilities Shrink DB exposure Reduce future running costs Improve long-term funding position Same as ReFlex Same as ReFlex 4

5 MARKET DEVELOPMENTS KEY DRIVERS PIE Positive for buy-out, funding and accounting Makes benefits easier and cheaper to hedge and insure Low inflationary environment REFLEX Removes liabilities Review level of transfer values Access to DC flexibilities COMMON DRIVERS Freedom & choice agenda More established and Code has improved confidence Increased focus on risk management ETV Stepping stone to buy-in/buy-out Funding level may cover enhancements SMALL POTS Increased limits Save future running costs Wider eligible pool of members 5

6 Effective delivery At-retirement member support (C)

7 EFFECTIVE DELIVERY AT-RETIREMENT MEMBER SUPPORT ReFlex Basic communications only Transfer value quotation for all As previous + illustrate alternative benefits As previous + high quality communications + IFA support. Member support / understanding Selection risk IFA cost / service / quality control Data security Cost / benefit 7

8 Effective delivery Understanding your member data (C)

9 EFFECTIVE DELIVERY UNDERSTANDING YOUR MEMBER DATA Our point of view 1. Company and Trustees should consider implementing a range of member option exercises. 2. The Scheme s technical provisions could be reduced by c 235m and the deficit by c 30m. 3. Reducing the Scheme s liabilities will reduce the volatility of the Scheme s funding position and the risk of additional funding requirements. 4. Utilise initial member option exercise to crosssubsidise further exercises. Potential Financial Impact of Member Option Exercises (Technical Provisions) 6,000 5,000 Deferreds Liability Distribution Technical Provisions ( 000) 4,000 3,000 2,000 1,000 Technical Provisions ( 000) ,000 Age Pensioners 10,000 Dependants 8,000 6,000 4,000 2, Age Offer Assumed Take Up Rate Trivial Commutation Bulk ETV / ReFlex ReFlex at Retirement Bulk PIE Trivial commutation or small pot lump sum depending on eligibility 50% TVs uplifted to reach Financial Adviser green light (individual offers) 15% ETV 20% ReFlex Standard TV (no enhancement) 80% of Balanced Deal amount 25% 30% Liability Released 3.2m 108.1m 118.9m 5.3m Asset Used 2.9m 97.9m 106.2m 0.0m Net Impact + 0.3m m m + 5.3m Note: Impacts can be achieved immediately, except for ReFlex at Retirement where savings and liability reduction appears over time as members retire. 9

10 Effective delivery Transfer values: finding the sweet spot (C)

11 EFFECTIVE DELIVERY TRANSFER VALUES: FINDING THE SWEET SPOT 50 Liability per 1 of pension Buy-out Technical provisions Current transfer value basis Financial adviser 75th percentile line (see below) The shaded pink region in the chart represents the potential area for which a member would receive a positive recommendation to transfer based on their assessed investment risk appetite Age The current transfer value basis falls within the financial adviser s positive recommendation range The current transfer value basis falls outside the financial adviser s positive recommendation range (although less important for members over age 55) The shaded pink region in the chart represents the potential area for which a member would receive a positive recommendation to transfer based on their assessed investment risk appetite. The top of the pink region represents a cautious risk appetite member requiring a greater amount of cash now due to lower investment returns in the long-term. (invested in lower risk assets) The converse is also true for the adventurous risk member at the bottom of the pink region. Recent analysis suggests that around 75% of members seeking financial advice have had a risk appetite such that IFAs would be able to give a positive recommendation of a transfer value at the dark pink line. 11

12 Effective delivery Making buy-in / buy-out more affordable (C)

13 EFFECTIVE DELIVERY MAKING BUY-IN / BUY-OUT MORE AFFORDABLE Initial buy-out deficit Combination of steps to reduce buy-out deficit Saving against initial estimate Buy-in/buy-out deficit PIE ETV Small pots (including WULS) Remaining estimated buy-in/buy-out premium 13

14 ANY QUESTIONS? Alan Baker Partner, UK DB Leader Matthew Demwell Partner, UK Head of Member Options Gary Peterson Senior Actuarial Consultant QUESTIONS FEEDBACK Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for. To submit a question while in full screen mode, use the Q&A button, on the floating panel, on the top of your screen. Please take the time to fill out the feedback form at the end of this webcast so we can continue to improve. The feedback form will pop-up in a new window when the session ends. CLICK HERE TO ASK A QUESTION TO ALL PANELISTS 14