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Maximising the Benefits and Minimising the Risk of Drawdown.

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Presentation on theme: "Maximising the Benefits and Minimising the Risk of Drawdown."— Presentation transcript:

1 Maximising the Benefits and Minimising the Risk of Drawdown

2 Sustainable Income Needs: Personal MIR Retirement income planning in 2015 A NEW ERA Accelerated Income needs? Tax Free Cash Additional cash needs? 3 Key Choices

3 Learning Outcomes  Describe the purpose of Drawdown reviews, HMRC and FCA requirements  Calculate relevant and personalised critical yields  Evaluate when conversion to an annuity might be considered  Understand what an appropriate process for Drawdown reviews might look like

4 Handset Question 1 What does your Drawdown Review process currently look like for clients under 75? 1.Annual review by post, or telephone. 2.Three yearly review by post, or telephone. 3.Annual review face to face. 4.Three yearly review face to face.

5 The purpose of Drawdown Reviews HMRC Requirement GAD Review to ensure fund doesn’t deplete too quickly Ongoing review post 2015?

6 FCA Rules for Drawdown Reviews COBS Outcomes = personal recommendations Regulatory updates 55 and 67

7 Best Practice for Drawdown Reviews – COBS “When a firm is making a personal recommendation to a retail client about income withdrawals or purchase of short-term annuities, it should consider all the relevant circumstances including: (1)the client's investment objectives, need for tax-free cash and state of health; (2) current and future income requirements, existing pension assets and the relative importance of the plan, given the client's financial circumstances; (3) the client's attitude to risk, ensuring that any discrepancy is clearly explained between his attitude to an income withdrawal or purchase of a short-term annuity and other investments. COBS 9.3.3

8 An appropriate process – meeting the needs of COBS Frequent reviews Charge an explicit facilitated fee Conduct full fact find Check Drawdown ATR Capacity for loss State of health – self and dependants Change in circumstances Relevant Critical Yields Issue relevant annuity quotes Discuss options with client Make recommendation

9 Is anything missing from your Drawdown Review Process? “A process which doesn’t include both health questions and the practical use of the answers to those questions is likely to result in more clients remaining in drawdown, possibly to their detriment”

10 Outcomes of the typical Drawdown Review Are sufficient reviews being undertaken and is health being considered?

11 Two key questions What are the outcomes of the typical Drawdown review? Based on the requirements of COBS is anything missing from your Drawdown review process?

12 Capped Drawdown Review: Outcomes Leave everything untouched Stay in drawdown with adjusted income levels Move whole fund to annuity/enhanced/impaired annuity Move part of fund to annuity/enhanced/impaired annuity Move to Flexible Drawdown

13 Outcomes of the typical Drawdown Review Income requirements Construct investment portfolio Assess risk profile Critical Yield Enhanced annuity rate?

14 Underwrite IncomeShape Personal Critical Yield Three Steps to a Personalised Critical Yield

15 Impact on Critical Yield calculation Quoted CY from Capped DD quotation 6.51% Step 3 Income 12.67% Step 2 Shape 6.45% Step 1 Underwrite 7.14% 0.00% 5.00% 10.00% Source: Avelo Exchange & Just Retirement Limited Based on an individual aged 65, with a £100k fund, monthly in arrears, no escalation, no value protection, 50% spouses pension, 5 year guarantee period, based on RH2 7RT postcode. An annual management charge of 2% has been assumed when calculating critical yields % Personalised Critical Yield

16 Handset Question 2 Would you like a copy of the Critical Yield Calculator? 1.Yes 2.No

17 When might a conversion to annuity be considered? Health LTC Death of spouse Assets depleted Mortality drag Now fully retired Concerns re performance required ATR changed Gtd income now important Legislation, GAD, etc

18 Is phased conversion to annuity something to be considered? Drawdown becomes progressively less suitable as we age; Annual mortality subsidy based on age of buying annuity Additional asset growth required to counteract the drag effect against increasing age

19 Exit strategies are important because of mortality drag When should annuitisation start? Annual mortality subsidy based on age of buying annuity Financial sense of annuitising increases Additional asset growth required to counteract the drag effect against increasing age

20 Talk to us! Annuities: Still relevant and valuable Better Client Outcome How to Reduce Ask the right Questions A useful Benchmark Regulatory Risk Support Conclusions

21 Handset Question 3 Following this presentation, to what extent will you now consider changes to your review process? 1.May consider making significant changes. 2.May consider a few changes. 3.Am unlikely to make any changes.

22 Thank You

23 Learning Outcomes  Describe the purpose of Drawdown reviews, HMRC and FCA requirements  Calculate relevant and personalised critical yields  Evaluate when conversion to an annuity might be considered  Understand what an appropriate process for Drawdown reviews might look like

24 Important Information It is our intention that the information contained within this presentation is accurate. We have taken all reasonable steps to ensure that it is up-to-date and where relevant, reflects the current views of our experts. However, we do not accept any liability for errors or omissions in the information supplied and if you require clarification on anything, our recommendation is that you contact us at the address below for verification, or call Our registered address: Just Retirement Limited Vale House, Roebuck Close, Bancroft Road, Reigate, Surrey RH2 7RU. Regulatory information: Just Retirement Limited (Registered in England Number ). Registered Office: Vale House, Roebuck Close, Bancroft Road, Reigate Surrey, RH2 7RU. Just Retirement Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.


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