Smarter Scheme Design In a Drawdown Environment Claire Finn 12 th April 2016
The New World Retirement Utopia
Tools to retirement The journey to get there Single Landing Point Multiple Landing Points
How many people are annuitizing? % of Assets [VALUE] % [VALUE] % 3.2bn has been encashed 4.2bn have has been invested in income drawdown 3.3bn Has been invested in annuity products [VALUE] % On BlackRock s DC Platform Nearly 1 in every 4 is flowing into drawdown products Source: ABI Pension Freedom Statistics: One Year On, 2015 Note: excludes drawdown withdrawals data, treated separately. For professional clients / qualified investors only RSM-3753
Annuity Hedge - How Practical? 25% Returns on a portfolio tracking annuity returns 20% 15% 12 month return 10% 5% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-5% Source: BlackRock DC Pre-Retirement Benchmark
The Trowel One Size Fits All Considerations: What is the right landing point? Maximising diversification Focus on flexible and all-weather components Allocation 100% 90% 80% 70% 60% 50%? 40% 30% 20% 10% 0% 20 25 30 35 40 45 50 55 60 65 Age Source: BlackRock. For illustrative purposes only.
The Fork A new tool Considerations: Landing Point Decision the default, default Contract Based is there power to make the change? Target Date Solution which one, which target? Profiling different defaults for different cohorts? 1. Targeting drawdown 2. Targeting Annuity 3. Targeting Cash Source: BlackRock. For illustrative purposes only.
Case Study
BlackRock s Approach Identical asset allocation until 10 years to retirement Flexi Retirement drawdown Retirement Pre-Retirement Fund Capital Cash Fund 100% Allocation 80% 60% 40% 20% 40% Equity Annuity Hedge Cash 0% 45 40 35 30 25 20 15 10 5 045-540 -1035-1530 -2025-2520 -3015 10 5 0 45 40 35 30 25 20 15 10 5 0 Years to Retirement Years to Retirement Years to Retirement Global equities Global small cap equities Global real estate Commodities UK bonds Overseas bonds Pre-retirement fund Cash Source: BlackRock. For illustrative purposes only. 9
Decumulation: where can investment products help? An investment product can seek to directly address market risk An investment product can seek to directly address inflation risk Market Risk Inflation Risk An investment product cannot explicitly address longevity risk Longevity Risk Behavioural Risk An investment product can act to mitigate these risks through the investor s experience FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY 10
Key Takeaways 1 Should 2 If 3 Investment your scheme be a trowel or a fork? you are a trowel, it may seem simple but lots to consider products can solve some, not all, retirement challenges Source: BlackRock. For illustrative purposes only.
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