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

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Your business risk: unknown change

Regulatory & tax risk Support tools and strategies Client behavior risk

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Pensions timeline

Cold Calling closes 17/8/18 In force October? DWP select committee – costs & transparency 3/9/18

Q3 2018 Q4 2018

FCA response CP18/7 DB transfers 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 FCA retirement outcomes CP18/17. And 2nd cons on investment pathways A-E contributions to 8% wef 6/4/19 Lifetime Allowance increases wef 6/4/19 Single Fin Guidance Body

Q1 2019

Cold Calling closes 17/8/18 In force October?

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Defined benefit transfer legislation

APTA & TVC 1st October 2018

Rules and guidance 1st April 2018 PS18/6 issued 26 March 2018 Assumptions used 6th April 2019

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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

Source: HMT July 2014 6

What does it mean for your business?

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

Review TVAS/APTA provider if free service was used Likely PTS need investment qualification by October 2020 PTS checking: agreed before report to client DB transfers can still take place

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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

£0 £200,000 £400,000 £600,000 £800,000 £1,000,000 £1,200,000 £1,400,000 £1,600,000 £1,800,000 £2,000,000 500 1000 1500 2000 2500 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17

25% tax 55% tax LTA

Source: RA freedom of Information request May18 9

Unknown: underspend or overspend

Divorce Loss of partner Long Term Care Change of Government Market volatility Brexit

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Your business risk: client education

Client behaviour risk Regulatory & tax risk Support tools & strategies

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Before 2015 Since freedom

Drawdown Annuity Drawdown Annuity

>90% 33% 67%

The changing retirement market

Drawdown Annuity More clients Smaller pots More reviews

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Potential for market downturn: Recession probability model estimates

Source: Investec Asset Management

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Behaviour if market downturn

Source: Bloomberg

Market Emotions Cycle Graph

• f how we feel as the markets

fluctuate

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Your business risk: consistency of approach

Support tools & strategies Client behaviour Regulatory & tax

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Longevity and cash-flow modelling

Source: Institute for fiscal studies 16

How long will my pension last?

Source: ONS Male age 55 17

Defined benefit transfer process: avoiding “industrialisation”

Use cash flow modelling Consistent Review Process Fact-find Risk Profiling Use APTA

Outsourcing model:

• Work closer together – meet regularly
• Share more client information
• Formalise relationship
• Refer to Rory Percival Guide

(September 2018)

Use TVC

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Use of investment and retirement strategies

Longevity tail risk Partial Annuitisation Fixed Term Income Cash buffer Low volatility Simple unit cancellation Live off yield

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Reducing business risk

Centralised Retirement Proposition Regulatory & tax Tools & strategies Client behaviour

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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

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• no. 08395855. Registered office: 6th Floor, 110 Cannon Street, London EC4N 6EU.

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Thank you – any questions?

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