creating certainty in uncertain markets

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Creating Certainty in Uncertain Markets

BankhallMarch 2009

James Etheridge

Business Development Manager


Creating certainty in uncertain markets

The increasing importance of annuities in retirement planning


Agenda

• About Partnership

• The market environment

• Is the time right for clients to retire?

• Why NOW is the right time to enter the annuity market

• How can you secure investment income?


About Us

• Founded 1995 - PAFS

• Specialist provider of financial services for people with ill health

• First to introduce impaired life annuities

• De-mutualised October 2005 as Partnership Assurance


What about the economy?

• Worst economic conditions for 60 years

• Banks being nationalised

• Iceland going bust

• 32% fall in FTSE, largest in history

• 0% interest rates – deflation etc.

• Biggest fraud in history

• Could be two years before come out of recession

What does the future hold?


FTSE 100 – Fell by 32% in 2008


Bank Base Rate at all time low

Source: Bank of England Base Rate


Retirement Options – Market shape

Illustrative purposes only - Based on ABI figures for 2008

ASP


Bond yield spreads

Gilt Yields v A grade Corporate Bonds and Bank Base Rate


Why Annuities?

• Guaranteed income for Life

• Spouse protection

• Value protection

• Guaranteed Periods

• Escalation

• Lock in real value / Return on your Investment


Buy now or defer?

• Pension funds are experiencing a downturn

• Should your clients wait for markets and their pension funds to recover?

• How long should they wait?


Why defer?

• Markets start to recover lost ground

• Interest rates or bond yields go up giving better annuity rates

• How long will this take?

• How much annuity income will your client lose?

• How long can your client keep working?


Impact of deferring

Age 65 Age 66

Fund Value £50000 -

- /+ 6% growth - £47000 £53000

Annuity income £4261 £4122 £4655

Annual Increase by deferring

- (£139) £394

Years to recover lost income

- - 10

Based on:A male smoker £50,000 fund after tax-free cashPartnership Enhanced Annuity rates as at 19 Feb 2009


Question

• Do you agree that there is a case for annuitising now?

1 Yes

2 No


Wealth Management

Should IFAs go into the annuity market now?

What potential does this market have?


Client Awareness at Retirement

• Open Market Option – FSA determined that compulsory ‘Wake up’ packs are sent by all ceding companies to people approaching retirement

• Increasing pressure from TCF perspective to ensure clients get the best available rate

• Treasury Pre-Budget Report on OMO due in March 2009

Should improve the current ABI statistics that show only 35% people retiring take Open Market Options


YouGov Research

Amongst 55+ age group:

• 79% didn’t know what an annuity was

• 61% had never heard of OMO

• Reasons why respondents didn’t take OMO:

– 49% were not aware of it

– 19% no financial benefit

– 11% not relevant to me

– 5% too confusing

– 16% other

• 78% of people taking OMO were ABC1

YouGov retirement survey July 2007


* Using Mintel’s All Items autodeflatorSource: ABI/Mintel

New Pension Annuities 2008 - 2012

£ B

illio

ns

Tho

usan

ds


Estimated future retirement market figures

At retirement pension transactions

Source: Watson Wyatt “In retirement Study” March 2008

Future Growth


Maximise client income

• Normal annuities are based on age so how can you get better annuity rates for your clients?

• By considering their lifestyle and health:

– Lifestyle/Smoker

– Enhanced

– Impaired


Why Enhanced?

• Estimates show that 40% of people could qualify for enhanced rates

• Only 10% of retirees purchase enhanced or impaired annuities

• Britain’s retirees are missing out on £1.25b in pension benefits every year

Source: Life Assurance & Pensions Handbook 2007 P24 point 7.12


Enhanced/impaired life annuities as percentage of total sold

Source: ABI/Mintel

Annuity trends

Num

ber

%


Case Study

• Rod is 65, single and suffers from chronic heart failure

• He has a fund of £50,000 after tax-free cash and he decides on a single life annuity with a five-year guarantee

StandardAnnuity

£3814.04

PartnershipEnhancedAnnuity

£5063.89

This data is for illustration purposes only comparing enhanced annuity rates with standard annuity rates. The benefits stated are correct as at 07 Jan 2009. Standard rates are average rates of the top 4 providers, taken from The Exchange.Other rates are from Partnership.

AnnualIncrease In income

33% or £1249.85


Case Study

• Doris is single, 67, female and a smoker

• She has a fund of £50,000 after tax-free cash opted for no guarantees

StandardRate

£3617.10

SmokerRate

£4373.11


21% or £756.01

This data is for illustration purposes only comparing smoker annuity rates with standard annuity rates. The benefits stated are correct as at 07 Jan 2009. Standard rates are average rates of the top 4 providers, taken from The Exchange.Other rates are from Partnership.


Case Study

• Thomas and Mary are married, Thomas is 66 with diabetes, Mary is 63 with high blood pressure

• Joint life £50,000. 50% spouse

StandardAnnuity

£3386.48

PartnershipEnhancedAnnuity

£3732.52


12% or £412.04

This data is for illustration purposes only comparing enhanced annuity rates with standard annuity rates.The benefits stated are correct as at 07 Jan 2009. Standard rates are average rates of the top 4 providers, taken from The Exchange.Other rates are from Partnership.


Question

• Do you appreciate the importance of asking your clients about their lifestyle and health?

1 Yes

2 No


Common Quote Form

• One form agreed by all providers

• Meets TCF requirements

• Compliance officers love it

• Ease of administration

• Form available from our website or www.commonquotation.co.uk

• Customer will get a better rate and the IFA has to do less work!


The case for Purchase Life Annuities

• Investment Bonds for income ?

• FTSE lost 30% in 2008

• Interest rates at all time low

• What return are your clients getting on their investments?

• Is the risk / reward level suitable for retired clients?


PLA Sales

Source: ABI data


Wealth Management - With Tax Free Cash.......?

• Purchase Life Annuities as part of the investment portfolio

• PLA will give a guaranteed income

• Enhanced / Impaired


Purchase Life Annuity

• Purchase life annuities as part of the investment portfolio?– Guaranteed rate of return for life– Impressive yields– Income and Inheritance tax benefits

PLA (Gross Annual Annuity Figure)

Male Age 60 Female Age 60 Male Age 70 Female Age 70

Smoker £5,845.41 (5.85%) £5,580.28 (5.58%) £7,748.84 (7.75%) £7,423.51 (7.42%)

Moderate £7,698.26 (7.7%) £7019.70 (7.02%) £10,573.64 (10.57%) £9,211.05 (9.21%)

Severe £16,000.19 (16.00%) £16,081.44 (16.08%) £21,901.63 (21.90%) £21,754.42 (21.75%)

Please note:• This data is for illustrative purposes only. Based on £100,000 initial investment income payments annually in advance. Rates as at 28/01/09. examples do not

take into account inflation. Income payments from a PLA can be escalated to help mitigate the effects of inflation.• The percentage figures shown in brackets represent the annual gross rate of return provided by the initial investment. • If the client does not live for long the purchase price of the annuity would be lost, however guarantee periods can be used to mitigate this loss of capital.


Question

• Will you now consider PLA’s as part of an investment portfolio?

1 Yes

2 No


Summary

• Annuities provide certainty in uncertain times

• Now is the time to purchase

• Enhanced annuities are a genuine opportunity to maximise client income

• 40% of clients could get more

• It’s easy to get a quote

• Consider PLA’s as an alternative investment vehicle

• Don’t forget the ‘health’ question!


GET BETTER ANNUITY RATES FOR YOUR CLIENTS IN 2009… AND YOU COULD DRIVE AWAY A BRAND NEW MINI* Partnership is one of the UK’s market leaders in providing financial solutions for people whose health and lifestyle may result in a reduced life expectancy. And it’s a fact that up to 40% of your clients could receive more money in retirement by answering a few simple questions about their health and lifestyle. We cover everyone from smokers and people with everyday conditions like hypertension – right through to those with serious illnesses such as heart disease. And we make sure that our solutions are tailored to match your clients’ circumstances. Your clients could enjoy happier, wealthier retirements and you could drive away a brand new Mini*. To enter, simply log in or register at www.partnership.co.uk/adviser and every time you request an illustration you’ll be entered into our free prize draw to win yourself a brand new mini. * Please read the Terms & Conditions that apply.

Closing date for entries is 30/04/09. Promotion open to IFAs only - not open to general public. All entrants must: (a) be resident and registered as an IFA in Great Britain, (b) be aged 18 or over, and (c) hold a full UK driver's licence. Prize is one Mini One car (excludes insurance). To enter this free prize draw simply request an illustration on the Partnership website and you'll automatically be entered for the prize draw. The promoter is Partnership, Sackville House, 143-149 Fenchurch Street, London EC3M 6BN. Further terms apply. Visit https://www.partnership.co.uk/adviser for full terms & conditions


Question

• Going forward will you regularly use the common quotation form ?

1 Yes

2 No


Name: James Etheridge

Business Development Manager

* Please note that the comments and views presented by the media clips are not representative of the views of Partnership or any member of staff of Partnership. The Mini shown in the media clip is not representative of the actual prize, for full details of the competition please refer to the terms and conditions on our website.

Partnership is a trading style of The Partnership Group of Companies, which includes: Partnership Life Assurance Company Limited (registered in England and Wales No. 05465261), and Partnership Home Loans Limited (registered in England and Wales No. 05108846).

Both companies are authorised and regulated by the Financial Services Authority. The registered office for both companies is Sackville House, 143-149 Fenchurch Street, London EC3M 6BN.

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