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P ension I ncome P lus A nnuity

P ension I ncome P lus A nnuity. What’s the opportunity?. What’s the opportunity?

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P ension I ncome P lus A nnuity

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  1. Pension Income Plus Annuity

  2. What’s the opportunity? • What’s the opportunity? • The annuity market is currently running at about £11bn per annum. That’s an astounding £11,000,000,000 in single premiums put into annuity contracts every year. Bearing in mind an annuity is a once and for all decision, this is a very big market. Would you take a job with no pay rises for the next 20-30 years? • Only 5.5% of this was accounted for by investment-linked annuities in the year Q4 2010 – Q3 2011. This means that an overwhelming proportion of people are buying incomes for life with no prospect for increases in the future. • Investment-linked annuities offer a real alternative to conventional annuities and drawdown pensions. Falling annuity rates and rising longevity, along with legislative/regulatory changes, mean that investment-linked annuities offer an opportunity to keep some exposure to investment returns while also receiving a competitive level of income. • Various press coverage over the last 10 years has tarnished the image of traditional with-profits products. However, many of the issues aren’t relevant for with-profits annuities. For example, a with-profits annuity will never be subject to a Market Value Reduction, nor will there be a possibility of not achieving a projected maturity value. Our Pension Income Plus Annuity also comes with both a starting income guarantee and a minimum income guarantee, so you know you can give your clients equity exposure with a safety net. 2

  3. What’s a Pension Income Plus Annuity • Pension Income Plus Annuity • It aims • To pay your client an income for the rest of their life • To give clients the opportunity to choose an annuity that can also provide benefits for: • Their spouse • Civil partner or • Dependants after death • To offer the potential for a rising income dependent on declared investment returns from our with-profits fund • To provide a guaranteed minimum income for the rest of your clients life, regardless of investment returns

  4. Why’s it so good? • USPs • Starting income is guaranteed for the first 2 years • Our guaranteed minimum income will start at 100% of the 0% AIR starting income level and increase at 50% of any percentage increase in income above its previous highest level • We are very proud of the LV= With Profits Fund performance and financial strength • Full range of death benefits (including value protection) • Option to convert to a conventional (non-profit) annuity or change Assumed Investment Returns at any policy anniversary after the second year • Membership of Liverpool Victoria Friendly Society including mutual bonus and discounts on other products such as 10% off car, home and pet insurance and 15% off travel insurance

  5. The Fund Itself • Just how good is it? • Cazalet* rate us 10/10 for • Financial strength, • Investment freedom, • Flexibility & • Bonus paying ability • AKG**rate us; • 4/5 for financial strength & • 4/5 for our with profits fund future performance potential *Cazalet With Profit Ratings October 2011 **AKG Actuaries & Consultants Ltd – UK Life Office With Profits Report December 2011

  6. Past Performance - Future Prospects

  7. Declared Investment Returns • PIPA has a simple single bonus structure. We will declare an annual investment return every quarter and the customer will receive the annual return declared in the quarter immediately prior to their policy anniversary. We call these Declared Investment Returns (DIR). • When we declare an investment return, it is applied to the customer’s policy for the coming year • If the DIR is the same as the Assumed Investment Return (AIR), the customers income will stay the same. • If the DIR is higher, income will rise • If the DIR is lower, income will fall (but never lower than the Guaranteed Minimum Income Level) • Each DIR that increases the annuity beyond its highest previous level will generate an increase of 50% of that percentage increase to the Guaranteed Minimum Income (GMI) • GMI starts at 100% of the starting income level of a 0% AIR for all customers

  8. Declared Investment Returns • Example: • This example shows how your client’s income could change given example DIRs. • It assumes a starting income of £10,609, an AIR of 3% and DIRs of 4% in year 1, 2% in year 2 and -1% in year 3

  9. Guaranteed Minimum Income • Example: • Assumes a starting income of £12,000, GMI of £10,000 and income for the first 5 years of: • Year 1 £12,000 Year 4 £12,450 • Year 2 £12,480 Year 5 £12,470 • Year 3 £12,480 Year 6 £12,604 • GMI is calculated as follows: • Year 1 Starts at £10,000 £10,000 • Year 2 As income has increased, GMI also increases: £12,480 (new income) - £12,000 (income in year 1) = £480 £480 / £12,000 x 100% = 4% GMI increases at 50% of 4% = 2% £10,000 x 2% = £200 so the GMI is now £10,200. £10,200 • Year 3 No increase = no GMI increase. £10,200 • Year 4 No increase = no GMI increase. £10,200 • Year 5 Income up but not higher than £12,480 = no GMI increase. £10,200 • Year 6 Income up and is higher than £12,480 = GMI increases £12,604.80 (new income) - £12,480 (highest previous level) = £124.80 £124.80 / £12,480 x 100% = 1% GMI increases at 50% of 1% = 0.5% £10,200 x 0.5% = £51 so the GMI is now £10,251 £10,251

  10. Income Profile Illustration Age • This graph illustrates income available from PIPA, an RPI linked annuity and a level annuity as well as average life expectancy • This example is based on a male aged 60 with inflation at 3% per annum, 2% AIR and Declared Investment Returns of 4.5% per annum • Although income starts slightly lower than the level income, it is higher than the RPI-linked option and rises above the level line relatively quickly, giving significantly more income by the average life expectancy line • For those clients who can’t afford to reduce starting income, you can consider using part of their fund • to buy level income and part to invest, giving both increased starting income and • maintaining some protection against inflation

  11. Case Study

  12. Mr Jacobs • Mr Jacobs is 70. When he retired at 65, he wanted to receive an income, whilst keeping his options open without committing to a lifetime annuity. At the time, he was in good health and he chose to go into drawdown pension. • Now that Mr Jacobs has turned 70, he’s ready to buy to a lifetime annuity. Last year he suffered a minor heart attack. This means that he now qualifies for an Enhanced Annuity with LV=. • Mr Jacobs has a balanced attitude to risk. He wants to use over half of his £95,000 fund to generate a secure income that will be guaranteed for the whole of his life. However, he’s also willing to use some of the fund to have some exposure to equities which may provide a higher income if the equities perform well. • His financial adviser has recommended that he uses £65,000 to buy an Enhanced Annuity with LV= to provide the guaranteed income and the remaining £30,000 to buy a Pension Income Plus Annuity from LV=. • Using our Pension Income Plus Annuity, Mr Jacobs’ pension fund is invested in the LV= with-profits fund which aims to increase his future income by applying investment returns. He chooses a 2% Assumed Investment Return (AIR). This means that if we declare an investment return of 2% in the following years, his income will remain the same. If our declared investment return is more than 2%, his income will increase accordingly.

  13. Mr Jacobs • On the downside, if the declared investment return is lower than 2%, Mr Jacobs would suffer a drop in income. However, to protect against this, the Pension Income Plus Annuity provides Mr Jacobs with a guaranteed minimum income which pays a minimum income that he can depend on for the rest of his life. This means his income will never be lower than the starting income he’d have received if he’d chosen a 0% AIR. We also guarantee that Mr Jacob’s income will not fall at all within the first 2 years, although he’ll still receive an increase in the second year if the investment return we declare is more than 2%. • His annuities will provide a higher income each year than they would have done if he’d bought annuities at age 65, as he now qualifies for enhanced terms due to his deteriorated health and he’s now 5 years older. As a proportion of his income is linked to investment returns, he should benefit from more protection against inflation than if all of his money was used to buy a level annuity where the guaranteed income stays the same each year.

  14. Online Tools • Our past performance calculator shows real returns on existing policy terms • Our forecaster illustrates what happens to PIPA income based on investment returns you enter • Product literature • www.lv.com/adviser

  15. Service • We strive to provide you with the best service possible. In fact, we’re so committed to it that we will put our Money Where Our Mouth Is and give your client £1,000 if we don’t issue their tax-free cash within 5 working days of sending out their Final Quote. • We are also proud winners of the Financial Adviser 5* Award • We have a dedicated quotes team to provide you with quotes and re-quotes. • Your quote will be personally handled by one of our Quote Managers. • You will also have a Telephone Account Manager who will provide you with help and support on any of our annuity products.

  16. Commission • We offer flexible commission options on our Pension Income Plus Annuity to allow you to select remuneration which reflects the work you do on each case. • You can sacrifice commission to nil, with the sacrificed amount being applied to increase the annuity rate • You can increase commission up to a maximum of 5% of the purchase price, with the extra being deducted from the annuity rate

  17. One last thing… • Comparing against Prudential's RSR • Our Assumed Investment Return is NET of charges • Our competitors’ Assumed Bonus Rates are NET of charges • Prudential's Required Smoothed Return is NET of charges • However, Prudential will return by default an RSR 1% above the ABR requested • Ensure you compare like with like by quoting ABR, AIR and RSR all at the same level

  18. Literature • Key • Features: • Case • Studies: • Policy • Conditions: • Past • Performance: • Please right click and select Open Hyperlink to open documents.

  19. Notice For financial advisers only. Not to be used with customers. Not be used after 31 July 2012 Liverpool Victoria Friendly Society Limited, Keynes House, Tilehouse Street, Hitchin, Herts, SG5 2DX.   Liverpool Victoria Friendly Society Limited is a member of the ABI, AFM and ILAG. Authorised and regulated by the Financial Services Authority, register number. 110035. NM Pensions Trustees Limited, (registered in England No. 4299742), act as Trustees and Scheme Administrators. Authorised and regulated by the Financial Services Authority, register number. 463402. Registered address for all companies: County Gates, Bournemouth BH1 2NF. Tel: 01202 292333. 21224527 02/12

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