September 2016 TRUST NEWS Over 90 large employers have chosen to use the National Pension Trust (NPT) to help individuals to access their pension savings flexibly. In this month s Trust News we consider why and what this looks like from a member s perspective. Freedom and Choice exposes inflexibility of existing Schemes Pension benefits can now be accessed in a variety of ways. However, most schemes still only enable members to choose between: n Purchasing an annuity, with the option to take up to 25% as tax free cash. n Transferring their benefits to an alternate scheme of their choice. Whilst a transfer enables members to transfer their benefits to another scheme to access the flexibilities, the transfer process can create challenges for members and reputational risks for Employers. Retirement Member challenges and Employer risks 1. Timing When do members want, or when can they afford, to retire? Most schemes only engage with members 6 months before Normal Retirement Age. This is too late for most. NPT helps members to engage at the right time for them. 2. Annuity rates perceived as poor value Annuities may generate a lower income than anticipated due to increasing life expectancy and reducing long term interest rates. NPT explains what members can expect and why. 4. Do not understand options available Pensions are complex; NPT helps members to understand the flexibilities that are available and which is most appropriate for them. 5. Do not know how to access the options Members do have the opportunity to transfer out to another vehicle. However, without employer support this can be daunting both at the point of transfer and thereafter if they have to manage their investments and withdrawal rates themselves. NPT can support members through this process. Annuity Income purchased with 100,000 for a single male aged 65 3. If they want an annuity which annuity? If an individual wants a secure income, most schemes require the member to review the market and choose the right annuity for them which can be challenging. NPT helps members to access the correct type and most competitive terms for them. 6. IFA support incurs cost for members IFAs can help but this incurs costs which research suggests many members are not prepared to pay. Frequently, fees are calculated on a percentage of funds basis; with cost of 3% to 5% of fund value not being uncommon. This can have a significant impact on members savings. NPT has negotiated significantly discounted rates for members from reputable advisors. 7. Scam risk When transferring pension savings, some members have become victims of pension scams; this could result in the member ending up in a wholly inappropriate product, or in the worst cases, losing all of their savings. NPT can remove this risk from the employer and its employees. 1
The Member Journey with NPT Many employers are offering their employees access to the National Pension Trust as a specialist retirement vehicle to: n Help members understand the options available n Provide cost effective support to members at and during retirement n Remove reputational risk from the Employer. In the sections that follow we consider the member journey where an Employer has made the National Pension Trust (NPT) available to members of its DC pension Scheme. 1. Engage with Individuals Members are contacted (email and writing) to inform them of the new specialist retirement scheme that has been made available and the options it gives them to access part or all of their benefits from age 55. A series of roadshows are held, tailored by age group. Members who are a number of years away from accessing their pension benefits are encouraged to review their financial positions and get on track. Those closer to their retirement age are able to begin to plan how they will access their benefits. 2. Identify what they should consider Employees are provided with access to a specialist web site that provides access to informative and educational literature and valuable modelling tools to consider the options available. This helps individuals to understand what they have, what they ll need and any gaps. It also helps them to understand the available options so that from age 55 they are able to understand and access the benefits they want. 2
3. Understand the options available Members aged 50 or over are encouraged to start considering how they will access their pension benefits. They are provided with access to guides, newsletters, helpline, a website and interactive modellors to understand what they have and what they will need for the retirement they want. If they wish to consider Flexi Access Drawdown, support is provided to help them consider the impact of longevity, withdrawal rates, investment returns and other factors (and what these mean!) Ordinarily this is complicated. However the National Pension Trust has sought to make it as simple as possible for members: n Fund value and income payments are shown graphically to illustrate the impact of different decisions n Investment assumptions reflect the expected return of the default investment managed by the Trustees n Sustainable withdrawal rates are proposed based upon how long a member is expected to receive their income given the combination of their expected retirement age and average mortality. In this way, members can vary the amount of income they take initially, or target an amount to leave for their dependants when they die, and understand what this means for their monthly income in retirement. The system is dynamic in that it works out all aspects for members. For example, when it comes to planning, it will work out based on an individual s current age and sex how long they are likely to live. (The screenshot above shows how long a 35 year old female can expect to live for.) 3
4. Understand tax consequences Members can access their pension savings in a variety of different ways be that tax free cash lump sum, taxed lump sums, annuity payments or any combination thereof. The impact on a member s income tax bill and future Annual Allowance differs markedly depending on the options they elect and any other income the individual may be receiving at that time. The Trust Retirement Guide, website and helpline enable individuals to explore various scenarios to understand the correct approach for them. 5. Simplified transfer process If a member wishes to make use of the flexibilities afforded by the Trust, they can transfer benefits into the Trust either via an on-line approach or via a traditional transfer form. Once their pension pot has been received, they will be provided with access to all of the flexibilities and support of the National Pension Trust. The pension monies transferred will initially be held on Cash Deposit (no investment charges for the member) whilst they decide whether and how to access their pension savings and whether they wish to make an active decision on how to invest their contributions. If they do not, their pension savings will be invested in the Default investment fund after 30 days the Balanced Growth Strategy which targets Flexi Access Drawdown. 4
6. Understand investments All members are different. Some people understand investments. Others can t get their heads around them. If members want, they can tailor their investments by choosing one or more of 17 self select funds. Alternatively, if a member prefers not to choose individual funds, but does wish to have a say on the risk and reward focus of their investments, a range of core strategies are provided to support members with tools to help them understand and choose the right strategy(s) for them. Alternatively, they can choose to invest in the default fund. Whichever approach they take, the Trustees will regularly monitor and review the underlying asset allocation and investment managers, to ensure that they continue to be appropriate. 7. Individual support Members of the Trust are able to access their pension benefits either on-line or via paper-based approaches. Telephone helpline and web-chat facilities are also available. Unlike other pension providers who use call centres to address member queries, individuals who call the National Pension Trust will be put through to dedicated pension administrators who are able to see the screens that members are using to guide them through their selections it seems an obvious approach, but this is not normal in the pensions world! For most, this, combined with the intuitive interactive website, regular communications, powerful modelling tools and ongoing investment governance is sufficient. Additional support is provided to vulnerable individuals who may struggle with making decisions / completing forms due to age and /or medical challenges. 8. Regulated Advice For those who wish to access regulated financial advice, the Trustees offer access to their retained independent financial advisor, Origen Financial Services. The Trustees keep the performance and fees of the advisor under regular review. Such an approach ensures that if members wish to access support, they can do so in the knowledge that the advisor they speak with is suitably qualified and knowledgeable of all of the flexibilities afforded by the National Pension Trust. Importantly, it also ensures that members are not being subjected to a pension scam which is an increasing risk in today s environment. 5
9. Accessing Benefits The National Pension Trust helps members to understand what level of income they may be able to withdraw and how that changes if, for example, they wanted to leave a fund behind for the benefit of their dependents. When ready, members can either access their benefits on-line, or via paper forms, depending on their preference. Whichever approach they adopt, they can access support via the helpline or webchat facility. If members wish they can access regulated advice from the Trust s retained financial advisors. Alternatively, they can appoint their own IFA. Therafter, they will continue to be supported throughout their retirement. 10. Ongoing Engagement In addition to the website, modellors and guides, members will receive tailored communications by SMS, email or paper (their choice which) to keep them informed of when contributions are invested, investment switches actioned and benefit payments made. The interactive support can be accessed via Smart Phones and Tablets not just desktop computers reflecting the changing ways in which people access information and make choices. Engagement is key to help members understand and make the most out of their pension savings. In this way, members value the pension benefit provided; the fundamental corporate objective of benefit provision. If you have any further questions please speak with your usual Xafinity consultant or contact; Ken Anderson, Head of DC Solutions, Xafinity E: ken.anderson@xafinity.com T: 0118 918 5457 M: 07917 263 712 www.xafinity.com Xafinity Consulting Limited. Registered Office: Phoenix House, 1 Station Hill, Reading, RG1 1NB. Registered in England and Wales under Company No. 2459442. Xafinity Consulting Limited is authorised and regulated by the Financial Conduct Authority. A member of The Society of Pension Professionals. 740XC (09/16) 6