The industry view Rachel Vahey, AEGON The current DC marketplace - PowerPoint PPT Presentation

The industry view Rachel Vahey, AEGON

The current DC marketplace Number of active schemes Number of members 72,000 2,700,000 680,000 34,000 1,900,000 100,000 Occ DC GPP GSHP Occ DC GPP GSHP 2 ,5 8 0 ,0 0 0 m em bers in GPP or GSHP Schem es SOURCE: The Pensions Regulator, 2006 2

Some interesting facts about AEGON schemes Average number Employer pays (on of members is average) 58% of total contribution 21 57% of Our modal GPP/ GSHP payment is £100 members earn per month below £25,000 SOURCE: AEGON – contract-based schemes 3

We need a sensible solution to ‘auto- enrolment’ otherwise schemes will level down or close 4

Two thirds of employers will level down 40 35 % of employers 30 25 20 15 10 5 0 Open & Limit & Shrink & Shrink & Open & reduce maintain maintain reduce grow Employers' reaction SOURCE: PPI – Modelled employer response scenario – based on Deloitte 2006 – DC schemes 5

Complement not compete? The USA Experience 401k designed to complement DB – in many cases the only retirement plan a US company has Beware of unintended consequences Members not participating, not contributing enough or not making the right choices 6

Losing five years’ saving - £15,000 earner 16000 Pension income ( £ pa) 14000 12000 10000 8000 PA 6000 GPP 4000 2000 0 5 10 15 20 25 30 35 40 Years of saving SOURCE: AEGON, 6% investment growth, 4% earnings growth, 0.5% amc for PAs, 1% amc for GPPs, male aged 65 at retirement, 5 year guarantee, RPI escalation, 9% of full earnings for GPP , 8% of band earnings for PAs 7

A £10k earner gets less than half pension under PA 1 6 0 0 0 Pension income (£pa) 1 4 0 0 0 1 2 0 0 0 1 0 0 0 0 8 0 0 0 PA 6 0 0 0 GPP 4 0 0 0 2 0 0 0 0 1 0 1 2 .5 1 5 1 7 .5 2 0 2 2 .5 Earnings ( £ k) SOURCE: AEGON, 6% investment growth, 4% earnings growth, 0.5% amc for PAs, 1% amc for GPPs, male aged 65 at retirement, 5 year guarantee, RPI escalation, 9% of full earnings for GPP , 8% of band earnings for PAs, 35 years’ saving 8

3 Steps to increase pension saving 1 . Design an em ployer com pliance regim e that w orks 2 . Design a sim ple, inclusive, qualifying schem e test 3 . Create a level playing field 9

We need a sensible solution to ‘auto- enrolment’ otherwise schemes will level down or close 10