Fixed Term Annuities A Smith | LV= Key Account Manager DATE For financial advisers only Not for use...

Fixed Term Annuities A Smith | LV= Key Account Manager DATE For financial advisers only Not for use with customers

2 At-retirement market landscape Giving clients more options in retirement: The case for Fixed Term Annuities Fact and Fiction: Bringing clarity to Fixed Term Annuities LV= Fixed Term Annuity product overview Case studies and sales opportunities Agenda 2

Fixed Term Annuities The At-Retirement market landscape 3 For financial advisers only Not for use with customers

4 At-Retirement market landscape Overview: annuity -vs- drawdown Illustrative only, not to scaleSource : ABI. New business stats 2012 (12 months) 12% 10 % 78%

5 At-Retirement market landscape Rise of the middle market Lifetime AnnuitiesEnhanced AnnuitiesDrawdown Middle Market Illustrative only, not to scale Flexible Annuities Fixed Term Annuities Variable Annuities With Profit Annuities Investment Linked Annuities

Longevity Attitudes Working patterns 6 At-Retirement market landscape Retirement its not what it used to be

7 At-Retirement market landscape Longevity life expectancy at age 65 20 17 17.8 20.4 Source: ONS Health Expectancies at Birth and at age 65 in the UK, 2008-2010 Years 50 years ago

8 At-Retirement market landscape Changing needs and attitudes Sources: National Association of Pension Funds, Bank of England, Primetime Retirement the amount 1 in 4 people aged 50-64 will need to save before retirement to get the income they expect percentage of people entering retirement with unsecured debt 24% pay-day lenders.com

9 At-Retirement market landscape Changing working patterns Source: LV= Working Late Index, 2012 people aged 50+ who had retired but since returned to work EXIT > 4.3m the average number of years people expect to have to work beyond State Retirement Age (men expect to work longer) Years 6.2 Average Female Male

Fixed Term Annuities Giving clients more options in retirement 10 For financial advisers only Not for use with customers

In an ideal world: Many clients would want GUARANTEES and CERTAINTY CHOICE and CONTROL Can they have it all? 11 Giving clients more options in retirement The case for Fixed Term Annuities

12 Giving clients more options in retirement The case for Fixed Term Annuities A lifetime income BUT...a lifetime lock-in Roughly 90% of people buy a Lifetime Annuity when they retire BUT What if health changes? What if rates change?What if circumstances change?

13 Giving clients more options in retirement The case for Fixed Term Annuities A lifetime income BUT...a lifetime lock-in Roughly 90% of people buy a Lifetime Annuity when they retire BUT Could a Fixed Term Annuity be the answer? What if health changes? What if rates change?What if circumstances change?

A Fixed Term Annuity gives: CONTROL, with a GUARANTEED outcome CONTROL of death benefits Future CHOICE CERTAINTY Giving clients more options in retirement The case for Fixed Term Annuities 14

15 Fixed Term Annuities How do they work? Pension Fund PCLS Or transfer from existing Drawdown (Not OMO) Fixed Term (typically 3-25 years) Guaranteed Maturity Lump sum Regular income, e.g.: Monthly in arrears/advance etc Escalation options available Annuity product Drawdown product

Annuity product Drawdown product 16 Fixed Term Annuities How do they work? Pension Fund PCLS Or transfer from existing Drawdown (Not OMO) Fixed Term (3-25 years) Maturity lump sum Regular, income, e.g.: Monthly in arrears/advance etc Escalation options available Maturity lump sum is known from outset and not subject to investment performance risk

Income Maturity 0Max MinMax Fixed Term Annuities How do they work? 17 The higher the income chosen at outset, the lower the maturity value annuities

Fixed Term Annuities How do they work? 18 Income Maturity 0Max MinMax The higher the income chosen at outset, the lower the maturity value and vice versa

Fixed Term Annuities How do they work? 19 Income Maturity 0Max MinMax The higher the income chosen at outset, the lower the maturity value and vice versa Income and Maturity Lump Sum will also be affected by term and any death benefit options selected

Lifetime Annuity: Future annuity rates may be higher Health may get worse but no way to access enhanced rates Circumstances may change but client is locked in to one shape of income Inflation can eat away at fixed income Death benefit options are not as good as Drawdown-style options Fixed Term Annuity: Future annuity rates may be lower (so maturity value might not be able to sustain income) GAD might restrict future income Enhanced rates might not be available or may be lower in the future than today Does not provide a guaranteed lifetime income 20 Risks

Fixed Term Annuities Fact and Fiction bringing clarity to Fixed Term Annuities 21 For financial advisers only Not for use with customers

A Fixed Term Annuity could benefit a client if: Annuity rates go up in the future Their health gets worse in the future Their circumstances change in the future (e.g. divorce, death of a spouse) But by how much do these things have to change What does the client have to believe Fact and Fiction Bringing clarity to Fixed Term Annuities 22

23 A data driven, evidence based illustrative analysis of the potential for these products to deliver real value in a series of different circumstances.

24 Increases in gilt yields, assuming these translate into improvements in annuity rates......could make purchasing a Fixed Term Annuity a successful strategy for many people. Source: LV= Fixed Term Annuity Fact and Fiction Report, 2012 Likelihood of a Fixed Term Annuity (FTA) achieving economic equivalence or higher compared to a Lifetime Annuity (LTA) given changes to annuity pricing yields

25 Where there is a reasonable age gap between the applicant and the spouse, or where the spouses pension is higher than 50%, then, in many cases, the fixed term route could provide a higher income Likelihood of a Fixed Term Annuity (FTA) achieving economic equivalence or higher compared to a Lifetime Annuity (LTA) for different combinations of age and level of benefit Source: LV= Fixed Term Annuity Fact and Fiction Report, 2012

Deterioration in health during the Fixed Term can also lead to a superior outcome...more serious conditions are likely to produce a better financial outcome relative to a Lifetime Annuity. 26 Likelihood of a Fixed Term Annuity (FTA) achieving economic equivalence or higher compared to a Lifetime Annuity (LTA) based on a subsequent adverse medical diagnosis Source: LV= Fixed Term Annuity Fact and Fiction Report, 2012

27 Fact and Fiction Comparison calculator A unique tool: Comparison charts Customised scenarios Print/download graphs

Fixed Term Annuities LV= Product overview 28 For financial advisers only Not for use with customers

Our Protected Retirement Plan offers: Terms of 3-25 yrs Income options at outset Guaranteed Maturity Value at the end of the term Choice of Death Benefits Flexible remuneration options PLUS Fixed Term Annuities LV= Product overview 29

Our Protected Retirement Plan also offers: 30 day quote guarantee period. Rate Match facility Money Where Our Mouth Is PLUS Fixed Term Annuities LV= Product overview 30

Unique Flexible Drawdown option Maximise income IHT planning Death benefit planning PLUS Fixed Term Annuities LV= Product overview 31

HLE: Number of years spent in very good or good health Source: ONS Health Expectancies at Birth and at age 65 in the UK, 2008-2010 33 Healthy Life Expectancy (HLE) at age 65 Males and females 20 17 10.1 10 11.7 11 8.7 Years 50 years ago 7.6

HLE: Number of years spent in very good or good health Source: ONS Health Expectancies at Birth and at age 65 in the UK, 2008-2010 34 Healthy Life Expectancy (HLE) at age 65 Males and females 20 17 10.1 10 11.7 11 8.7 Years 50 years ago 7.6 Your clients could spend up to half of their retirement in poor/ill health

Income continues to be paid to spouse/partner or dependant at the specified rate At end of the term, they receive same %age of GMV Provides lump sum (initial investment less income paid) Spouse/partner could use to buy income in their own right Client can leave the contract early if spouse/partner or financial dependant dies Could use fund to buy single life annuity Remaining income paid as a lump sum* If in combination with Dependants Benefit, income is paid for remaining period of the guarantee 35 LV= Fixed Term Annuity Death Benefit Options Overview Break Clause Value Protection Dependants Benefit Shared Appreciation Guarantee Period 12 34

Income continues to be paid to spouse/partner or dependant at the specified rate At end of the term, they receive same %age of GMV Provides lump sum (initial investment less income paid) Spouse/partner could use to buy income in their own right Remaining income paid as a lump sum* If in combination with Dependants Benefit, income is paid for remaining period of the guarantee 36 LV= Fixed Term Annuity Death Benefit Options Overview Client can leave the contract early if spouse/partner or financial dependant dies Could use fund to buy single life annuity Break Clause Value Protection Dependants Benefit Shared Appreciation Guarantee Period 12 34

Income continues to be paid to spouse/partner or dependant at the specified rate At end of the term, they receive same %age of GMV Client can leave the contract early if spouse/partner or financial dependant dies Could use fund to buy single life annuity Remaining income paid as a lump sum* If in combination with Dependants Benefit, income is paid for remaining period of the guarantee 37 LV= Fixed Term Annuity Death Benefit Options Overview Provides lump sum (initial investment less income paid) Spouse/partner could use to buy income in their own right Break Clause Value Protection Dependants Benefit Shared Appreciation Guarantee Period 12 34

Provides lump sum (initial investment less income paid) Spouse/partner could use to buy income in their own right Client can leave the contract early if spouse/partner or financial dependant dies Could use fund to buy single life annuity Remaining income paid as a lump sum* If in combination with Dependants Benefit, income is paid for remaining period of the guarantee 38 LV= Fixed Term Annuity Death Benefit Options Overview Income continues to be paid to spouse/partner or dependant at the specified rate At end of the term, they receive same %age of GMV Break Clause Value Protection Dependants Benefit Shared Appreciation Guarantee Period 12 34

Income continues to be paid to spouse/partner or dependant at the specified rate At end of the term, they receive same %age of GMV Provides lump sum (initial investment less income paid) Spouse/partner could use to buy income in their own right Client can leave the contract early if spouse/partner or financial dependant dies Could use fund to buy single life annuity 39 LV= Fixed Term Annuity Death Benefit Options Overview Remaining income paid as a lump sum* If in combination with Dependants Benefit, income is paid for remaining period of the guarantee Break Clause Value Protection Dependants Benefit Shared Appreciation Guarantee Period 12 34

40 LV= Fixed Term Annuity Death Benefit Options Value Protection Death of client Lump sum death benefit: Net investment Income taken Fund Term What happens next? Beneficiary can choose: Lump sum death benefit (less tax, currently 55%) Annuity purchase (potentially an enhanced annuity if health has deteriorated) Fixed Term Annuity/Drawdown

41 LV= Fixed Term Annuity Death Benefit Options Dependants Benefit Death of client What happens next? At maturity, Dependant receives maturity lump sum and can purchase an income: Based on their age at that point Based on annuity rates/gilt yields at maturity Potentially an enhanced annuity if health has deteriorated Lump sum death benefit: None, plan runs to maturity with income recalculated based on Dependants age, rates and fund value Fund Term

42 LV= Fixed Term Annuity Death Benefit Options Guaranteed Period Death of client What happens next? Beneficiary can use the lump sum for any purpose Lump sum death benefit: Balance of unpaid income, less tax (currently 55%) Fund Term

Fixed Term Annuities Case studies and sales opportunities 43 For financial advisers only Not for use with customers

Who might FTAs be suitable for? Healthy retirees Nearly healthy (minor enhancements) Those averse to investment risk Those who dont need an income right now Those who are retiring in stages (e.g. part-time employment) Those looking to preserve wealth Those wary of lifetime lock-in 44 Fixed Term Annuities (FTAs) Case studies and sales opportunities

Mr Jones Aged 60 and single Currently slightly overweight and high blood pressure Looking to bridge income up to State Retirement Age to reduce working hours No dependants so chooses to take no death benefits to maximise Guaranteed Maturity Value 45 Fixed Term Annuities Case study 1 Client case study PDF available from www.lv.com/adviser

At maturity is diagnosed with worsening blood pressure and angina and qualifies for an enhanced annuity. Mr Jones Aged 60 and single Currently slightly overweight and high blood pressure Looking to bridge income up to State Retirement Age to reduce working hours No dependants so chooses to take no death benefits to maximise Guaranteed Maturity Value 46 Fixed Term Annuities Case study 1 Client case study PDF available from www.lv.com/adviser

47 Fixed Term Annuities Case study 2 Mr Shah Aged 74 and now widowed Has secure pension income to meet the Minimum Income Requirement for Flexible Drawdown, including dependants income from late wifes pension Has 100,000 un-crystallised pension fund Takes 25,000 tax free cash and buys a PRP with a Nil Maturity Value over a 3 year term Tax depends on individual circumstances and is subject to change

Client case study PDF available from www.lv.com/adviser He is able to gift monies to his children: 7 year Potentially Exempt Transfers 40% potential IHT v 55% lump sum death tax. 48 Fixed Term Annuities Case study 2 Mr Shah Aged 74 and now widowed Has secure pension income to meet the Minimum Income Requirement for Flexible Drawdown, including dependants income from late wifes pension Has 100,000 un-crystallised pension fund Takes 25,000 tax free cash and buys a PRP with a Nil Maturity Value over a 3 year term Tax depends on individual circumstances and is subject to change

Mr & Mrs Ledger Married, both in early sixties Wife diagnosed with cancer Wants to maximise income (at the expense of Guaranteed Maturity Value) Wife dies during the term of the Protected Retirement Plan Client case study PDF available from www.lv.com/adviser 49 Fixed Term Annuities Case study 3

Mr & Mrs Ledger Married, both in early sixties Wife diagnosed with cancer Wants to maximise income (at the expense of Guaranteed Maturity Value) Wife dies during the term of the Protected Retirement Plan Client able to use maturity value to meet changed needs. Client case study PDF available from www.lv.com/adviser 50 Fixed Term Annuities Case study 3

51 Fixed Term Annuity sales opportunities Client types to look out for Those approaching retirement with uncrystallised funds (esp. healthy) Those already in Drawdown (looking for an exit?) Those who qualify for Flexible Drawdown Those looking for flexibility with income (approaching retirement in stages) Those with larger funds looking for a cocktail solution to spread risk

52 Fixed Term Annuity sales opportunities Why should you recommend the LV= PRP? allowing you to plan your customers retirement income provision more effectively.

53 Fixed Term Annuity sales opportunities Why should you recommend the LV= PRP? allowing you to plan your customers retirement income provision more effectively. broadening your competitive and propositional advantage over those adviser firms offering only traditional lifetime annuities and retirement solutions.

54 Fixed Term Annuity sales opportunities Why should you recommend the LV= PRP? allowing you to plan your customers retirement income provision more effectively. broadening your competitive and propositional advantage over those adviser firms offering only traditional lifetime annuities and retirement solutions. supporting Treating Customers Fairly principles and highlighting all available options.

55 Fixed Term Annuity sales opportunities Why should you recommend the LV= PRP? allowing you to plan your customers retirement income provision more effectively. broadening your competitive and propositional advantage over those adviser firms offering only traditional lifetime annuities and retirement solutions. supporting Treating Customers Fairly principles and highlighting all available options. providing opportunity for further advice (and remuneration) when the plan matures, based on client situation at that time.

56 Fixed Term Annuity sales opportunities Why should you recommend the LV= PRP? allowing you to plan your customers retirement income provision more effectively. broadening your competitive and propositional advantage over those adviser firms offering only traditional lifetime annuities and retirement solutions. supporting Treating Customers Fairly principles and highlighting all available options. providing opportunity for further advice (and remuneration) when the plan matures, based on client situation at that time.. enabling a continued customer relationship and greater embedded value for your business.

57 Fixed Term Annuity sales opportunities Why should you recommend the LV= PRP? allowing you to plan your customers retirement income provision more effectively. broadening your competitive and propositional advantage over those adviser firms offering only traditional lifetime annuities and retirement solutions. supporting Treating Customers Fairly principles and highlighting all available options. providing opportunity for further advice (and remuneration) when the plan matures, based on client situation at that time.. enabling a continued customer relationship and greater embedded value for your business. offering transparent charging, factory gate pricing and remuneration flexibility.

58 Fixed Term Annuity sales opportunities Why should you recommend the LV= PRP? allowing you to plan your customers retirement income provision more effectively. broadening your competitive and propositional advantage over those adviser firms offering only traditional lifetime annuities and retirement solutions. supporting Treating Customers Fairly principles and highlighting all available options. providing opportunity for further advice (and remuneration) when the plan matures, based on client situation at that time.. enabling a continued customer relationship and greater embedded value for your business. offering transparent charging, factory gate pricing and remuneration flexibility. LV= gives you the full picture

59 Fixed Term Annuity sales opportunities Why should you recommend the LV= PRP? A SIMPLE and FLEXIBLE alternative to a Lifetime Annuity Lifetime Annuities no longer the default option A new route to a potentially better financial outcome in retirement

Midlands and South West:0800 678 1680 North: 0800 678 1682 South East: 0800 678 1681 Or Central quotes team:0800 169 1111 or email them [email protected] You can access and download a full range of Protected Retirement Plan documents and guides at www.LV.com/adviser Opening times 8.30am 5.30pm Monday to Friday. For textphone dial 18001 first. We may record and/or monitor your calls for training and audit purposes. 60 To find out more

This is for financial advisers only Not to be used after 30 June 2013 This presentation is based on our understanding of current and proposed legislation as at March 2013 applicable in England and Wales and HM Revenue & Customs practice which may change in the future. We cannot accept responsibility for any action arising as a result of the information contained in this presentation. 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. 21332938 04/13 Important notes 61

Fixed Term Annuities A Smith | LV= Key Account Manager DATE For financial advisers only Not for use...

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Transcript of Fixed Term Annuities A Smith | LV= Key Account Manager DATE For financial advisers only Not for use...