Its a RISKY Business Paradigm Partner Forums Autumn 2018 Kevan - PowerPoint PPT Presentation

“It’s a RISKY Business” Paradigm Partner Forums – Autumn 2018 Kevan Ramanauckis, Retirement Income Specialist Information approved for Professional Adviser use only – Not for retail clients

Learning Objectives • Highlight – Three key risk areas affecting your retirement business and their likely impact • Describe – How these risks could be managed • Understand – Why a joined up approach will lower risk in your retirement proposition 2

Your business risk: unknown change Client Regulatory behavior & tax risk risk Support tools and strategies 3

Pensions timeline Q3 2018 Q4 2018 Q1 2019 FCA retirement outcomes CP18/17. And Cold Calling Cold Calling 2 nd cons on investment pathways closes 17/8/18 closes 17/8/18 In force October? In force October? A-E contributions to 8% wef 6/4/19 FCA response DWP select committee – Single Fin Guidance Body CP18/7 costs & transparency 3/9/18 DB transfers Lifetime Allowance increases wef 6/4/19 Dashboard update? UK Budget DB transfers Intro of TVC and APTA 1/10/18 FCA response to discussion paper DP18/1 non-workplace pensions SPA equalised 65 then start increase SPA to 66 4

Defined benefit transfer legislation PS18/6 issued 26 March 2018 Assumptions used Rules and guidance 6th April 2019 1st April 2018 APTA & TVC 1st October 2018 5

Engagement risk: Who should consider a transfer? 4.11 Nonetheless, it is likely that some individuals will request transfers out of their defined benefit pensions, and for some individuals, this may be in their best interests. For example: • if they are heavily in debt • if they have a short life expectancy • if they are unmarried and do not have dependants • if they would prefer wealth to an income stream 6 Source: HMT July 2014

What does it mean for your business? Likely PTS need PTS checking: Review TVAS/APTA DB transfers can investment agreed before provider if free still take place qualification by report to client service was used October 2020 Some other key areas Take care with triage services Strong process if working with another firm (whether providing or accepting) Potential changes to contingent charging 7

Pension tax regime changes Tax year LTA AA MPAA Tiered AA 06/07 £1.5m £215,000 07/08 £1.6m £225,000 08/09 £1.65m £235,000 09/10 £1.75m £245,000 10/11 £1.8m £255,000 11/12 £1.8m £50,000 12/13 £1.5m £50,000 13/14 NO CHANGE 14/15 £1.25m £40,000 15/16 £1.25m £40,000* £10,000 16/17 £1m £40,000 £10,000 Earnings £150k+ 17/18 £1m £40,000 £4,000 Earnings £150k+ 18/19 £1.03m £40,000 £4,000 Earnings £150k+ *but potentially up to £80k due to aligning of PIP to tax year 8

Number of people paying LTA tax charge 2500 £2,000,000 £1,800,000 2000 £1,600,000 £1,400,000 1500 £1,200,000 £1,000,000 25% tax 55% tax LTA 1000 £800,000 £600,000 500 £400,000 £200,000 0 £0 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 Source: RA freedom of Information request May18 9

Unknown: underspend or overspend Divorce Loss of partner Long Term Care Market Change of Brexit volatility Government 10

Your business risk: client education Client Support behaviour tools & risk strategies Regulatory & tax risk 11

The changing retirement market Since freedom Before 2015 Drawdown 67% Annuity 33% >90% Drawdown Drawdown Annuity Annuity More clients Smaller pots More reviews 12

Potential for market downturn: Recession probability model estimates Source: Investec Asset Management 13

Behaviour if market downturn Market Emotions Cycle Graph of how we feel as the markets fluctuate Source: Bloomberg 14

Your business risk: consistency of approach Support Regulatory tools & & tax strategies Client behaviour 15

Longevity and cash-flow modelling Source: Institute for fiscal studies 16

How long will my pension last? 17 Source: ONS Male age 55

Defined benefit transfer process: avoiding “industrialisation” Consistent Fact-find Risk Review Process Profiling Outsourcing model: • Work closer together – meet regularly • Share more client information Use cash flow Use APTA • Formalise relationship modelling • Refer to Rory Percival Guide (September 2018) Use TVC 18

Use of investment and retirement strategies Simple unit Cash buffer Fixed Term Income cancellation Live off yield Partial Annuitisation Low volatility Longevity tail risk 19

Reducing business risk Centralised Client Retirement behaviour Proposition Tools & Regulatory strategies & tax 20

Learning Objectives ✓ Highlight – Three key risk areas affecting your retirement business and their likely impact ✓ Describe – How these risks could be managed ✓ Understand – Why a joined up approach will lower risk in your retirement proposition 21

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