employee pension options what is the employer’s role?€¦ · annual volatility. retirement phase...

Employee pension options –what is the employer’s role?

12 September, 2019

Document Classification: KPMG Public

2© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with

KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

With you today

Richard Birkin

Head of DC Pensions

& Wider Savings

T: +44 (0) 7779 280720

E: [email protected]

Mark Powley

Head of DC

Investment Advisory

T: +44 (0)7795 644573


Jonathan Summerlin

Head of Defined Benefit

Member Options

T: +44 (0)7967 308112


mailto:[email protected]


3© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved.

Agenda

DC/workplace savings landscape

Changes in DC default strategies

In-retirement investment pathways

Retirement activity and support

DB transfer options and activity

DC/workplace savings landscape




DC workplace savings landscapeDC delivery vehicles

2016 2017

Master Trust 5% 10%

Own Trust 46% 47%

0%

20%

40%

60%

80%

100%20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Trust Contract

Source: Pensions and Lifetime Savings Association (“PLSA”)

DC providers

Insurance Companies

— Aegon

— Standard Life

— Fidelity

— Aviva

— Legal & General

— Scottish Widows

Employee Ben Cons (Master Trust)

— Aon

— Capita

— Mercer

— XPS

— Willis Towers

Watson

Others

— Smart Pension

— The People’s

Pension

— Nest

— Salvus

— SEI

Note: The above does not represent an exhaustive list of

providers in the market

To provide some

context, Automatic

Enrolment has

increased the number

of members of DC

schemes to around

15 million. Almost

13.5 million of these

are in DC

Master Trusts.

Source: The Pensions Regulator

scheme return data 2018/19




Master Trust Authorisation

22

16

44

Authorised Applied andawaitingresponse

Exiting themarket

Some of those already authorised by the Regulator

LifeSight Crystal Bluesky Aviva

Legal & General Mercer Standard Life

Fidelity Capita Aon Smart Pensions

The People’s Pension SEI

National Pension Trust

Note: The above does not represent an exhaustive list of providers that have applied for authorisation




Integrated workplace savings

Debt

consolidation

Invest in DC

account

General investment

account

General investment

account

General investment

account

Employer

contribution

Employee

contribution

Changes in DC default strategies


© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.




© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG

International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Providers’ investment capabilities –Growth phase

Realised risk and return,

1 year to 30 June 2019

Aviva

Aegon

L&GAonFidelity

Mercer LifeSight

0%

4%

8%

12%

16%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Retu

rnAnnual volatility

Growth phase return performance,

30 June 2019

Asset allocation 31 years from retirement

0%

50%

100%

LifeSight Aon Fidelity Aviva Aegon Mercer StandardLife

NEST L&G

Passive Developed Equity Equities – Global SmallCap Emerging Markets Equity Infrastructure Equity Private Equity

Property Commodities DGF High Yield Debt Emerging Markets Debt

Absolute Return Bonds Corporate bonds Government Bonds Cash

Retu

rn

Source: KPMG and the providers






© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG

International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Providers’ investment capabilities –Retirement phase

Realised risk and return,

1 year to 30 June 2019

AvivaAegon

L&G

Aon

Fidelity

Mercer

LifeSight

0%

4%

8%

12%

16%

0% 5% 10%

Retu

rn

Annual volatility

Retirement phase performance,

30 June 2019

Asset allocation 1 year from retirement

0%

50%

100%

L&G Mercer Aon Aegon Aviva StandardLife

LifeSight Fidelity NEST

Passive Developed Equity Equities – Global SmallCap Emerging Markets Equity Infrastructure Equity Private Equity

Property Commodities DGF High Yield Debt Emerging Markets Debt

Absolute Return Bonds Corporate bonds Government Bonds Cash

Retu

rn

Source: KPMG and the providers

Investment pathways




Default investment pathwaysIntroduction from 1 August 2020 of default

investment pathways for drawdown products

(100,000 retirees a year)

Four options to be provided to cater for different

broad retirement objectives

Support with investment decision for those

moving on non-advised basis

Full cash investment has to be an active choice

Will not provide optimal outcome for everyone,

but aim to avoid retirees from the worst outcomes

(running out of money in retirement)




Default investment pathways – The options

£

Leave money

where it is

Buy an annuity

within 5 years

£

£

£

£

Take money as

long-term income

within next 5 years

££

£

£

£

£

Cash in all the pot

within 5 years

Retirement activity and support





Market retirement dataRetirement income decision

(Oct 15-Mar 18)

13%

31%

3%

53%

0%

10%

20%

30%

40%

50%

60%

Annuities Drawdown UFPLS Full cashwithdrawals

5%15% 21% 23% 20%

9%7%

4%

46%58% 69%

84%

2%

3%

4%

4%4% 5%

86%58%

29%15%

7% 3%

0%

20%

40%

60%

80%

100%

Less than£10,000

£10,000-£29,000

£30,000-£49,000

£50,000-£99,000

£100,000-£249,000

£250,000and above

Annuities Drawdown UFPLS Full cash withdrawals

Source: FCA

The drawdown and UFPLS options have also increased in

popularity since pension flexibility was introduced, with

Drawdown being the route most members take for pot sizes

over £50,000.

Retirement income decision by pot size

(Oct 15-Mar 18)

Source: FCA

Since pension flexibility was introduced, there has been a

marked reduction in the number of annuities purchased, with

the majority of members opting for full cash withdrawals across

all age ranges.




Workplace at-retirement market

AdviceProduct

‘Retail’

‘Institutional’

LifeSight

AVIVA

Scottish Widows

AegonOrigen Financial

Services

HUB Financial

Solutions

Legal &

General

Wealth at work

Wealth Wizards

Standard Life 1825

Royal London

Fidelity

International

Hargreaves

Lansdown

LVE




At-retirement risks to trustees and sponsor

Risks of doing nothing

— Members take “Path of least resistance”

and cash out

— Poor member outcomes (e.g. buying poor

value products)

— Succession planning issues

— Company pension spend ‘wasted’

Risks of doing something

— Increased costs

— Implied recommendation

— Reputational link to provider(s) in a sector

with a poor reputation

Successfulat-retirement frameworks manage each of the risks to the Trustee and sponsor, as well as those

borne by members




Workplace savings developments

Links to

banking apps

Relevant

member

segmentation

Digital

robo-advice

Augmented

reality

Debt

consolidation

Increased use

of social media

Increased

functionality

through apps

Links to Smart

Speakers

(Alexa, Google

Home)

Live Chat to

guidance

support and

admin

Additional

personalisation

in comms

Improved real

time MI

Stronger

security for

apps

Digital

drawdown

journeys

Integrated ISA

functionality

DB transfer options and activity




DB transfer activity – Context

t

nched its freedom In 2014, the Government lau and choice initiative; the changes came into

affect from April 2015

“ “This government believes in the

principle of freedom. Individuals

who have worked hard and

saved responsibly throughout

their adult life should be trusted

to make their own decisions with

their pension savings, and the

reforms I announced at Budget

will deliver just that.”

I want as many people as possible

to be able to access their pension

flexibly. That is why the governmen

has decided to continue to allow

those saving into private sector

defined benefit pension schemes to

transfer to defined contribution

schemes, subject to new

safeguards which are designed to

protect the best interests of the

saver and the scheme.”

“With more choice and support

for individuals and a regulatory

structure designed to both

protect consumers and promote

competition, I am confident that

the retirement income market will

develop in a way that focuses on

the interests of savers.”

Source: Freedom and choice in pensions: government response to the consultation (July 2014)




DB transfer activity – ContextA significant number of defined benefit

members have wanted to take advantage

of this flexibility:

235,000scheme members took

DB transfer advice

Combined transfer

v

£83bnalues of

Note: Between April 2015 and September 2018

Source: FCA




FCA’s concerns about DB transfers – the headlines

FCA: one third

of British Steel

transfer

unsuitable

–

Citywire

Fewer than half

of DB transfers

deemed suitable

by FCA

–

Professional

Adviser

Unsuitable

advice prompts

FCA U-turn

on DB transfer

assumption

–

Retirement

Planner

LEBC agrees

to stop

DB transfer work

–

Professional

Pensions




FCA’s concerns about DB transfers – The realityOur work of DB transfers

– Oct 2017

— 88 cases reviewed

since Oct 2015

— 47% suitable

— 17% unsuitable

— 36% unclear if

suitable or not

DB transfers – market wide

data results 06/19

— 3,042 firms have transfer permissions – 99% response rate

to FCA

— 2,426 provided TV advice between 04/15 and 09/18, to 235k

scheme members with TVs worth a combined £83bn

— 69% of members received a positive recommendation to

transfer (60% of firms had a rate of 75% or more)

— ‘Triage’ likely overstates the above (although still 55% if

triage factored in)

— This review was not an assessment of suitability of advice




What employers should be thinking about

Providing/supporting access to financial advice – some decisions:

— Do you want to provide/support any access at all, or leave individuals to their

own devices.

If yes:

— Do you want to have a preferred provider(s) and if so, how many?

— Who will pay for the member advice and in whole or in part?

— If funded, how many times can a member see them?

— Will funding only be available for members using the selected adviser(s)?

— How will you select the FCA registered adviser?

— Will members be encouraged to undertake any form of pre-advice process?

— How will the FCA registered adviser’s performance be monitored?

Questions?

Thank you


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employee pension options what is the employer’s role?€¦ · annual volatility. retirement phase...

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