Planning. For financial advisers only

Transcription

1 REDEFINING Retirement Planning For financial advisers only

2 introduction Retirement IS BEING REDEFINED. People are living longer and enjoying better health; and the financial and economic climate continues to be one of dramatic change and uncertainty. In order to balance the books of UK plc, government policy will continue to challenge and evolve. And due to the quicker pace of life, clients aspirations and available assets often change during retirement, with some continuing to work. People need a plan but more importantly they need to conduct regular reviews to ensure they enjoy their golden years. Providing retirement advice to clients in such a dynamic environment requires careful understanding and regular planning to ensure their desired retirement outcomes are defined, regularly assessed and aligned to deliver what is required. Clients expectations and needs from their retirement, however defined, have never been greater. Creating and managing a unique retirement strategy for each client is at the heart of future success. Old Mutual Wealth can help support you and your clients in THREE simple steps: 1. Defining clients needs 2. Developing a retirement strategy 3. Using the UK s market-leading retirement proposition The retirement advice gap Our research* shows that to gain an understanding of their pension options, just 1% of people have spoken to the Government s Pension Wise service while 37% have taken to the internet. 53% have done nothing at all. 1% Spoken to Pension Wise 7% Asked a friend or family member ACTION TAKEN BY THOSE AWARE OF CHANGES 8% Spoken to a financial adviser 37% Researched online 6% Spoken to my pension provider 53% None of these things * Old Mutual Wealth Redefining Retirement report, research conducted in association with YouGov, May Download the full report at 2

3 SECTION 1: DEFINING CLIENTS NEEDS The first fundamental stage in creating a unique retirement strategy is to fully define your client s individual needs. This will help ascertain their income requirements and, in turn, the legacy they are able to leave to loved ones. Crucially retirement income needs to be sub-divided into three component parts: 1. the essentials, for example utility bills, food, travel. 2. Known costs, for example holidays, leisure subscriptions. 3. Unexpected costs, for example home repairs, health bills. Hierarchy of Retirement Income Legacy (inheritance for loved ones) Unknown costs (e.g. the unexpected boiler breakdown, hospital bill) Known costs (e.g. lifestyle choices, holidays, events) legacy unknown costs known costs Planning in this way will identify the potential value of savings that may be available to pass on in the event of death. Essential income needs (minimum requirement for a client s lifestyle) essential income needs The important questions all clients should ask We ve identified four key questions that clients need to consider as a starting point to creating a unique retirement strategy. Question How long will my income need to last? How much money will I need? Is my money going to run out? Will I be able to maintain my standard of living? Main considerations People are living longer. Many clients underestimate how long they ll live. Often, leaving wealth to the next generation is also an objective. Comparing lifestyle pre-retirement to a client s lifestyle expectations post-retirement is vital. Retirement may last almost as long as a client s working life. Essential income needs must be balanced against luxuries. When income will be needed is as important as how much. Planning over a 20 year period anticipating all the bumps in the road is virtually impossible, so reviews are vital. An annuity is the only sure-fire way to ensure a continual income stream. This can be a once-only decision, the impact of which could last for 30 years so making the wrong decision could have a significant long-term impact not only for the individual but potentially for their family. Research indicates that the majority of individuals will choose (at least initially) not to take the annuity path. Even if headline rates are currently low, inflation must be factored in to long-term retirement plans. Income needs will go through peaks and troughs in retirement, with peaks during periods of active retirement and when care is needed. Investment portfolios must be designed to be accessed at different life stages. Reviewing actual investment returns achieved is paramount to avoid running out of money. 3

4 SECTION 2: THE NEED FOR A RETIREMENT strategy Going beyond pensions For advisers, whose expert guidance is vital to help ensure an entire generation can afford the lifestyle they want, changes to the way in which retirement can be funded have added to the list of new planning considerations. Meaning that: a raft of pension income withdrawal options need to be examined different options may be needed at different parts of the retirement income cycle it s no longer just about the traditional pension a variety of assets must now be considered in the retirement income mix inheritance planning plays a key role, thanks to greater tax-efficiency for passing on pension savings. Holistic planning To meet the needs of this new generation it s vital for advice to take a holistic view that involves the whole family. Replacing the old decision of annuity or drawdown? must be a retirement planning process which starts with a client s needs looking at their essential income requirements, their long-held retirement dreams, their need for contingency funds and their legacy wishes. This can help to define a unique retirement strategy for each client. Reducing tax and increasing legacies Most clients have a finite capacity to build wealth, impacted by Government policy which places constraints on how much clients are able to invest into arrangements such as pensions and ISAs. In addition, the rules governing the annual pension savings allowance mean taking money from accumulated pension savings in the wrong way could reduce a client s ability to invest further into their pension to 10,000 a year. For some clients, the retirement journey means a longer transition from work to full retirement, meaning employment income will be part of the shorter-term income planning and allow wealth to continue to build for future use. Tax considerations Tax is a crucial consideration when looking at the way in which a client s wealth has been built up and how it can be accessed. Delivering your client s income needs as tax-efficiently as possible avoids unnecessary reduction in capital wealth, increasing the values that can remain available for the longer term. This can be achieved by using tax allowances in conjunction with other tax-efficient withdrawal options available, for example: tax-free ISA withdrawals tax-deferred bond withdrawals of up to 5% of the original investment each year use of capital gains tax annual allowances tax-free pension commencement lump sum within the client s lifetime allowance pension income - taxed at the client s marginal rate of income tax in the year of withdrawal or annuity income. Legacy plans For many clients, leaving money to the next generation will be an important objective as part of their retirement plans. Wealth left to a spouse has no immediate inheritance tax impact but this can simply defer the problem and tax liability until the death of the spouse. Planning to pass wealth on beyond a spouse/civil partner requires more careful planning, which should: take into account the breakdown of the assets that make up the client s retirement wealth be aligned to the way in which income is planned to be delivered in their lifetime. The tax treatment and efficiency of these options will depend on the individual circumstances of each customer. Tax rules and their application may change in the future. 4

5 Retirement income: sequence of asset withdrawals Many clients will have retirement wealth which is made up of many different sources such as property, private pension savings (which can take a variety of forms), State Pension provisions, ISAs, bank deposits, and other collective investments. How and when income from each of these asset types can be delivered is a key element of the planning cycle. Depending on where their savings are held, using the various tax allowances available to each client in the most effective way will deliver better long-term outcomes. Taking these tax allowances into account, we have defined the following sequence of withdrawals for taking income from the different asset types. 1 Cash 2 Onshore Investment Bond 3 Offshore Investment Bond 4 Property 5 Unit Trust / OEIC 6 Shares 7 ISA 8 Pension Commencement Lump Sum* 9 PENSION INCOME This sequence of withdrawals is used as the basis for our Retirement Income Explorer tool (please see page 8). If a particular asset is not being used to fund a client s retirement income it can be easily excluded from the tool. * Assuming the client is at the minimum age to draw from their pension and that they are taking the cash rather than re-investing it. 5

6 SECTION 3: USING MARKET-LEADING PROPOSITIONS AND SOLUTIONS Introducing IncomeSelect Transforming retirement planning, IncomeSelect brings together all the elements you need to give robust, scalable yet tailored advice to your clients at retirement. IncomeSelect offers comprehensive and holistic solutions and tools within an advice process blueprint that allows you to select the elements you need to plan the income your clients need for the retirement they want. It allows you to: Model income in retirement our retirement planning tool is easy to use with clients, allowing you to model on- and off-platform assets and create a unique retirement strategy. Invest for income in retirement investment solutions designed for the at retirement market to remove some of the risks of investing and give a smooth experience in retirement. Withdraw income in retirement an award winning, drawdown product with automated flexible income options designed to drive tax efficiency* for income and transfer of capital on death. Review income in retirement our retirement planning tool makes client reviews simple with stored records for those essential annual reviews. All of this is underpinned by the awardwinning service and support we offer to help you deliver great retirement outcomes for your clients. fact find wealth review risk assessment discussing risk ongoing review REVIEW INCOME Simple to use with clients The focal point of the review Allows advisers to demonstrate the value of advice RETIREMENT INCOME EXPLORER TOOL RETIREMENT INCOME EXPLORER TOOL Model INCOME Simple to use with clients Highly personalised life expectancy What if modelling Creates a plan for sustainable income Adviser reasons why reports define retirement strategy transfer and consolidate withdraw INCOME Widest range of pension income options Incl. small pots and drip-feed drawdown Able to access income tax-efficiently* Can create a lasting legacy FLEXIBLE INCOME OPTIONS NEW GENERATION FUNDS invest for INCOME Total return focused Genuine diversification Active short-term risk management Helps mitigate retirement risks tax wrapper selection executive retirement strategy fund selection strategic asset allocation suitability Award-winning pension product Award-winning service Retirement Advice Blueprint Service & support Leading specialist and technical support Advice opportunities that add value Leading TVAS reports * The tax treatment and efficiency of these options will depend on the individual circumstances of each customer. Tax rules and their application may change in the future. Your clients investments can go down in value as well as up and they may not get back what they put in. 6

7 A blueprint for designing unique retirement strategies The days of a simple choice between which type of annuity is right for a client, or if drawdown is a possibility, are long gone. Today, on the face of it, there are three primary options: annuity, drawdown, and lump sum, as well as numerous combinations of these options. April 2015 has been a catalyst for change to the way in which advisers need to define, plan, and deliver desired retirement outcomes putting the focus on two key requirements: Income provision, and Legacy provision To support you with your advice process for your clients, we have created a blueprint for retirement advice, with four additional (and crucial) stages which stand apart from a standard investment process. You may wish to consider and adopt the relevant stages into your own process. WEALTH REVIEW What are the client s income and legacy objectives? What assets could they use for retirement income provision? Is any inheritance likely in the future? DEFINE RETIREMENT STRATEGY What are the responses to the four questions on page 3? When will the client stop working, full time or part time? What is the client s and their dependants likely lifespan? What income profile is required? How long will income need to be sustained? Which assets should be drawn from first? retirement advice blueprint EXECUTE RETIREMENT STRATEGY How do I agree the strategy with my client? How can I review the strategy in the future? Do I need to manage off-platform investments as part of the strategy? Can I illustrate the strategy to the client easily? ongoing review How often should I review the retirement strategy with the client? Will I need to review the asset sequence that s funding their retirement income? What happens if the client becomes unwell? Will inflation remain low? 7

8 SECTION 3: USING MARKET-LEADING PROPOSITIONS AND SOLUTIONS model income For the vast majority of clients, defining how much income is required is perhaps the hardest part of retirement planning. Typically people have a view on how much money they think they need, but it is nothing more than a guess, and they critically underestimate their likely lifespan. Model INCOME Simple to use with clients Highly personalised life expectancy What if modelling Creates a plan for sustainable income Adviser reasons why reports RETIREMENT INCOME EXPLORER TOOL Retirement Income Explorer Tool Being able to envisage a client s likely expenditure pattern is vital, so to support this stage of the advice blueprint, we have developed a new and sophisticated tool called retirement income explorer. Simple-to-use, the tool is designed to allow you to create, manage and review unique retirement income and legacy strategies for your clients. The tool contains three separate components to provide you with the freedom and choice as to how you wish to integrate it into your own advice process. 1. Risk profiler: This feature is entirely optional you may wish to use your own methods for risk assessment, or one of our existing risk profiling tools. 2. Quick View: Allows you to compare and contrast the pension retirement options for clients. 3. Full View: Gives you the freedom to model any combination of options you wish. The Retirement Income Explorer tool provides flexible and adaptable modelling solutions so you can plan with greater certainty. From simple to sophisticated scenarios, you can create compelling strategies and easy-to-understand client reports, using standard or inflation adjusted stochastic projections. quick view The quick view option provides an initial overview of the new pension options available since April 2015, once a client has reached age 55. Eight simple questions are asked about the client, their current earnings, existing pension fund, intended retirement age and required income to provide a projected fund value at retirement age. You can choose to show a range of possible outcomes based on good or poor market conditions (based on our stochastic model), which can be changed easily using a slider. The client s life expectancy and the potential sustainability of the income throughout their later life is shown. The data entered in quick view can be carried over into the full view option, where additional questions will need to be answered and further options are available to show a more detailed forecast. FULL view The full view option is an advanced planning tool that builds on the calculation approach of the quick view option. It has three key additional areas of functionality: advanced tax planning to target a net income or expense requirement throughout retirement additional data entry options additional at- and in-retirement options. Where the quick view option shows the gross income or fund at the target retirement date, full view shows how the available assets and incomes can target a net-of-tax income or goal throughout the whole of the client s later life. The client s expenses in retirement for utilities and other living costs can be entered optionally and used as the post-retirement target income. One-off objectives or goals can be entered to provide additional income over a period of time, for a special purchase or holiday, for example. A specific plan for the client s options for taking income from pensions and other investments can also be configured, such as whether or not to take a pension commencement lump sum at outset, or to use a blend of annuity and drawdown, for example. What if scenarios can be entered to show how changing any element of the retirement plan could improve the client s future lifestyle. 8

9 RETIREMENT INCOME EXPLORER TOOL REVIEW INCOME Simple to use with clients The focal point of the review Allows advisers to demonstrate the value of advice REVIEW INCOME A truly successful retirement will only be achieved by conducting comprehensive, regular reviews to reaffirm the client s unique retirement strategy taking into account their income and legacy needs. Running through a review checklist and readdressing the four key questions on page 3, assisted by the Retirement Income Explorer tool, will help to redefine the client s requirements and ascertain whether their retirement strategy is on-track. Review checklist EXAMPLES AND CONSIDERATIONS Health 3 What is the client s state of health? Has it changed since the last review? 3 What is the state of health of dependants, and has this changed over the review period? 3 Do existing death benefit nominations need to be revised for legacy purposes? Income sequence 3 Which assets and investments will continue to fund retirement income? 3 In what sequence will assets and investments be used to fund retirement income? Income and legacy requirements 3 What is the required level of future income? 3 What is the future expenditure pattern, taking into account any special one-off expenses? 3 Is the current basis of income provision the best solution for the future and is it sustainable? 3 Is the existing legacy strategy still valid, or does this need to be reviewed? Legislation and tax 3 Has tax changed since the last review, impacting income payments or investment contributions? 3 Has legislation altered the way in which income can be taken? 3 Are there any future proposed changes to taxation or legislation which may trigger the need to review the client s retirement strategy? Investments and assets 3 How have investments and assets grown in line with previous assumptions? 3 Based on the growth achieved is the desired level of future income and legacy provision on-track? 3 What is the client s current attitude to risk? 3 Do assets need to be rebalanced to be realigned to the client s risk appetite? 3 What is the current economic position and outlook for the sectors in which the client is invested? 3 What is the impact of current and projected inflation on the retirement strategy? Once you ve established your client s retirement strategy using the Retirement Income Explorer tool, conducting a review is straightforward. A very clear illustration shows whether income is likely to be sustainable based on the client s remodelled income needs. And What if functionality will help you to review and model alternative scenarios for the client to consider, optimising the balance between income and legacy. 9

10 SECTION 3: USING MARKET-LEADING PROPOSITIONS AND SOLUTIONS INVEST FOR INCOME IN RETIREMENT Determining an investment solution that gives retirees a sufficient level of income, which is safeguarded against inflation, presents a unique set of challenges and opportunities. The new pension options are likely to see an increase in clients staying invested who might historically have annuitised. This will significantly extend an adviser s role, placing them under additional scrutiny from the FCA, who put the onus on advisers to have a comprehensive, robust and documented investment advice process. invest for INCOME Total return focused Genuine diversification Active short-term risk management Helps mitigate retirement risks NEW GENERATION FUNDS Old Mutual Wealth offers a range of flexible investment options to meet the different retirement needs for your clients whatever their investment strategy: WEALTHSELECT selfselect A hand-picked range of around 60 funds from 13 high quality and well-known fund managers, combined with a risk targeted Managed Portfolio Service. Access to funds across all the major asset classes, allowing you to build your own bespoke portfolios. Designed to maximise the returns your clients receive for the level of risk they re willing to take. Designed for cost-conscious investors seeking targeted, inflation-beating returns. Designed for those who wish to take an income, either now or in the future. AN AT RETIREMENT SOLUTION A key component of advice to your at retirement clients is in choosing the most appropriate way of generating income to meet their needs. Choosing the right solution for your clients will depend on many factors, such as their income requirements, attitude to risk (including risks such as inflation and longevity), capacity for loss, available income streams, and the flexibility of the product in which they re invested. What are the key risks in retirement? Longevity the risk of your clients outliving their retirement pot or the risk of dying too early and thus getting poor value from the chosen investment solution. Inheritance the risk that wealth may be used up and not be available to pass on. Flexibility the risk of clients not being able to access money from their retirement pot at the timing and amount of their choosing. Growth the risk of not achieving the required growth from an investment. Sequence of returns the risk of experiencing negative returns early in retirement and struggling to recover those losses in the future. Essentially, this is pound cost averaging in reverse, known as pound cost ravaging. 10

11 Old Mutual Generation Portfolios: A FLEXIBLE SOLUTION TO the PENSIONS REFORMS Old Mutual s Generation Portfolios have been CREATED WITH THE ADVISER ADVICE PROCESS IN MIND. Designed in collaboration with advisers following the introduction of the new pension freedoms, the portfolios offer a flexible and bespoke solution for those that want to draw down on their pension pot while remaining invested in markets. The portfolios are aimed at retirees who: may not want to buy an annuity would like a solution that allows them to remain invested at the same time as having an annuity; or would like to keep the option open to buy an annuity in the future. They also seek to help clients leave some or all of their pension savings to loved ones, should they desire. 3 GENERATION TARGET 3 Targeting CPI+3% 4 A FOCUS ON TOTAL RETURN AND BEATING INFLATION Each portfolio offers the potential for capital growth and seeks to guard against the ravages of inflation by aiming to achieve target returns above the consumer price index. Moreover, as the portfolio range targets returns above the consumer price index of either +3%, +4% or +5% over the medium term, they enable you to recommend one which is most suitable to your client s attitude to risk. As part of the overall retirement planning process, once the requirement for withdrawals has been established, generation portfolios can be utilised to manage the remaining pot taking into consideration the key risks in retirement investing. GENUINE DIVERSIFCATION The portfolios offer the diversification, by investing across equities; government and corporate bonds; property; commodities and cash. ACTIVE SHORT-TERM RISK MANAGEMENT And to keep on top of sequence of returns risk and the effects on a client s portfolio of withdrawing money in falling markets, the manager has a specific focus on the downside. From tactical asset allocation to strategic asset allocation, everything is tested with regards to the ability to help preserve capital. GENERATION TARGET 4 Targeting CPI+4% 5 GENERATION TARGET 5 Targeting CPI+5% Equity Fixed Income Alternative investments 11

12 SECTION 3: USING MARKET-LEADING PROPOSITIONS AND SOLUTIONS Reaching pension freedom The new pension freedoms have put accessing retirement savings at the forefront of consumers minds However many existing products will not provide the right solutions, either in terms of investment choice, income routes or legacy options. Being able to manage a client s investable portfolio through a platform, whereby the wrappers held offer simple and flexible ways to extract capital along the retirement journey, with no additional costs for any option, is important. A robust and capable platform Financial advisers have told us first hand that sustainability is one of the key factors they consider when they perform due diligence on a prospective platform. Our scale and business model makes us a sustainable platform to partner with, and we are investing significantly in our systems to make our platform the most flexible in the market. withdraw INCOME Widest range of pension income options Incl. small pots and drip-feed drawdown To access income tax-efficiently* To create a lasting legacy FLEXIBLE INCOME OPTIONS Our platform gives you: a simple system that brings efficiencies into your business fully integrated risk assessment, planning, portfolio construction and management tools extensive audit trail and reporting facilities straightforward charging options with no hidden extras flexible investment strategies multiple tax wrappers for holistic retirement planning 1 simple charge Our platform has a simple and straightforward unbundled charging structure. It has one single, transparent charge that s easy for clients to understand and doesn t affect investment decisions. There are no fund manager initial charges or platform switch charges. We have removed our drawdown charge and minimum investment charge. over 1,250 funds from more than 100 fund managers straight-through processing (STP). 12

13 A truly market-leading pension A central component of IncomeSelect is our Collective Retirement Account (CRA). The CRA is a Defaqto Gold-Star-rated pension product, with a service rating of 91% (as at May 2015). This is the highest score achieved across the industry recognition of leading service following the biggest change to pensions in 100 years. This gives you the withdrawal options you need to ensure your clients don t pay too much in tax,* allows your clients to gain access to their money when they need it, and helps them to leave a tax-efficient legacy. All of which is provided at no additional cost. The CRA delivers all of the following options under the same, single product: flexi-access drawdown tax-free cash lump sum, then taxed income tax-efficient monthly income - monthly income from tax-free cash initially, taxed income after* Tax-efficient monthly income - monthly income part tax-free, part taxed* capped drawdown small pots taxable lump sums from uncrystallised funds via flexi access drawdown full encashment the open market option and, most importantly, from a legacy perspective, nominees flexi-access drawdown. * The tax treatment and efficiency of these options will depend on the individual circumstances of each customer. Our Retirement Income Explorer tool builds upon our comprehensive platform offering. You have complete freedom and choice as to how to use it within your business; you may wish to model a pension solution, or incorporate wider platform assets like ISAs, or use it to its full extent and incorporate off-platform investments. 13

14 SECTION 3: USING MARKET-LEADING PROPOSITIONS AND SOLUTIONS Leading specialist support to identify advice opportunities We re committed to helping you deliver great retirement outcomes for your clients and make the most of new opportunities. It s why we give each adviser firm a personal support model including a dedicated Wealth Management Consultant, part of whose role is to identify opportunities where your clients could benefit from the pension freedoms. In addition, to support you through the pension changes, we have heavily invested in our on-the-ground Specialist Sales Team to grow it by over 80% within the last year. It includes experts who can bring clarity to regulation and convert it into simple, accessible advice ideas that can benefit you and your clients. Award-winning pension product Award-winning service Retirement Advice Blueprint Leading specialist and technical support Advice opportunities that add value Leading TVAS reports Service & support 14

15 SECTION 4: OPTIMISING PROPOSITIONS FOR YOUR CLIENTS BRINGING INCOMESELECT TO LIFE FOR YOUR CLIENTS To really help you understand how IncomeSelect can benefit your clients and their retirement planning visit our website for a series of case studies showing how the different elements work in practise. The tranquility seeker The time-rich volunteer The mature entrepreneur The active adventurer The determined fund raiser The passionate hobbyist The legacy maker The portfolio careerist Our website offers a raft of support to help you plan the next chapter in your client s retirement. Please visit: For retirement-focused: case studies articles videos research and insight and much more. 15

16 Your clients investments may fall or rise in value and they may not get back what they put in. The tax treatment and efficiency of these options will depend on the individual circumstances of each customer. Tax rules and their application may change in the future. Full details of the Collective Retirement Account can be obtained from your Old Mutual Wealth consultant or via our website. Calls may be monitored and recorded for training purposes and to avoid misunderstandings. Old Mutual Wealth is the trading name of Old Mutual Wealth Limited which provides an Individual Savings Account (ISA) and Collective Investment Account (CIA) and Old Mutual Wealth Life & Pensions Limited which provides a Collective Retirement Account (CRA) and Collective Investment Bond (CIB). The WealthSelect Managed Portfolio Service is provided by Old Mutual Wealth Limited and Old Mutual Wealth Life & Pensions Limited. Old Mutual Wealth Limited and Old Mutual Wealth Life & Pensions Limited are registered in England and Wales under numbers and respectively. Registered Office at Old Mutual House, Portland Terrace, Southampton SO14 7EJ, United Kingdom. Old Mutual Wealth Limited is authorised and regulated by the Financial Conduct Authority. Old Mutual Wealth Life & Pensions Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Their Financial Services register numbers are and respectively. VAT number SK12001/ /November 2015