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FCA Annuity Review

FCA Annuity Review. For financial advisers only – not retail clients. Agenda. Why needed? Main findings What next for providers/advisers?. Agenda. Why needed? Main findings What next for providers/advisers?. The Retirement Market - 2012. USP/VA £ 1.20bn. UL £0.12bn. WP £1.18bn.

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FCA Annuity Review

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  1. FCA Annuity Review For financial advisers only – not retail clients

  2. Agenda • Why needed? • Main findings • What next for providers/advisers?

  3. Agenda • Why needed? • Main findings • What next for providers/advisers?

  4. The Retirement Market - 2012 USP/VA £1.20bn UL £0.12bn WP £1.18bn Annuity £14.05bn Includes £4.5bn of ‘enhanced’ annuities ABI, Q4 2012 Quarterly MSE Data

  5. Are people getting a good deal?

  6. ABI Key Findings • Aware of the OMO? • People ‘shop around’? • Change provider? c91% c30% change provider c63% c30% Source: ‘ABI – Retirement Choices: Baseline to measure effectiveness of the code of conduct’ May 2013

  7. Agenda • Why needed? • Main findings • What next for providers/advisers?

  8. Providing certainty in uncertain times SII

  9. The cost of inertia • How many consumers who purchase their annuity from their existing provider could get a better deal on the open market? 80% FCA Thematic Review of Annuities February 2014

  10. The numbers

  11. ‘average’ increases - standard FCA Thematic Review of Annuities February 2014

  12. ‘average’ increases - enhanced FCA Thematic Review of Annuities February 2014

  13. Important notes! • We compared annuity rates offered to existing pension customers to the average of the top three rates available on the open market • We used a single ‘health’ factor – smoking – to represent eligibility for enhanced annuities FCA Thematic Review of Annuities February 2014

  14. How income can vary between providers and types of annuity Source: AMS portal and Partnership September 2013. Based on 65 year old with £50,000 pension fund, who has had a heart attack. Figures show best available income. Single life. Payable monthly in advance. No guarantee period. No escalation For illustration purposes only

  15. The value of advice £16,705 For illustration purposes only Calculation to show fund needed to give £3,434 pa using existing rate on a pro-rata basis, using rates from previous slide.

  16. It’s not just ‘rate’ ….it is also important that they: • Convert their pension to an annuity at the right time for them • (e.g. it may be more appropriate for them to use drawdown initially or to defer taking an income) • Buy the right ‘shape’ of annuity for them • (e.g. single life or joint life, level or escalating, enhanced or standard, and with or without guarantee)

  17. Annuity timing • Pauline, aged 65 • Fund Value (after PCLS) £50,000 • Annuity available at 65 £3,482 pa • Fund at age 68 £59,550 • Annuity available at 68 £4,001 pa • Would take until age 88 to recoup the ‘lost’ income! For illustration purposes only Source: Partnership November 2013 Single life annuity. Single life. Payable monthly in advance. No guarantee period. Level income. 6% net pa growth rate (net of 1% charge) assumed between 65 and 68. This forecast is not a reliable indicator of future performance and investments may grow at higher or lower rate than assumed Conditions: Diabetes, High Blood Pressure, Overweight.

  18. Level versus escalating income Source: AMS portal and Partnership September 2013. Based on 65 year old with £50,000 pension fund. Figures show best available income. Single life. Payable monthly in advance. No guarantee period. Level income (no escalation) vs fixed increase of 3% pa For illustration purposes only

  19. Provider Behaviour Acceleration in the last five years: of the use of individual underwriting and the growth of enhanced annuities. . …Overall standard annuities offered to existing pension customers were expected to be more profitable than annuities written in the open market. Profitability may be higher for standard annuities when compared to enhanced annuities….

  20. Little competition in standard annuities

  21. Competitive enhanced annuity market

  22. Agenda • Why needed? • Main findings • What next for providers/advisers?

  23. FCA next steps • Retirement Income market study • (including annuities and drawdown) • Identify ways of improving consumer engagement to prompt shopping around • look at market dynamics • (for example, patterns of market entry and exit) to understand what drives the high levels of concentration observed in parts of these markets • look at how these markets are likely to develop in the future • in response to changing retirement patterns and needs. FCA Thematic Review of Annuities February 2014

  24. More chance of losing out… • Those with small funds – less choice • Not shopping for Enhanced annuities CHANCE Your Annuity Matures Collect £10

  25. The effect of adviser charging Retiree aged 65, best rate from AMS and Partnership rates. December 2013. Based on fund after PCLS, pro-rated for adviser charge. Single life. Payable monthly in advance. No guarantee period. Level income Enhanced based on diabetes, high blood pressure and overweight For illustration purposes only

  26. The effect of adviser charging Retiree aged 65, best rate from AMS and Partnership rates. December 2013. Based on fund after PCLS, pro-rated for adviser charge. Single life. Payable monthly in advance. No guarantee period. Level income Enhanced based on diabetes, high blood pressure and overweight For illustration purposes only

  27. Summary • Annuities remain the vehicle for most people • Underwriting becoming a significant option • Adviser-charging for ‘real’ cost available

  28. Thank you No liability or responsibility is accepted by Partnership for the use or otherwise of the statements in this literature in any individual situations regarding the giving of advice. The financial Adviser remains solely responsible for ensuring the advice provided is appropriate and meets all legal and regulatory requirements. Tax may be subject to change in the future and depends on individual circumstances. 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). Partnership Life Assurance Company Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Partnership Home Loans Limited is authorised and regulated by the Financial Conduct Authority. The registered office for both companies is Heron Tower, 5th Floor, 110 Bishopsgate, London EC2N 4AY

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