What do you want? - Actuarial Society of South Africa...WHAT ARE YOU GOING TO DO WHEN YOU RETIRE?...
31
What do you want? Managing risks for better outcomes when you retire Warren Matthysen
Transcript of What do you want? - Actuarial Society of South Africa...WHAT ARE YOU GOING TO DO WHEN YOU RETIRE?...
What do you want?Managing risks for better outcomes when you retire
Warren Matthysen
WHAT ARE YOU GOING TO DO WHEN YOU RETIRE?
• Association of Savings And Investment South Africa (ASISA) – 30 June 2017
• R57.3bn invested in Living Annuity products – new investments
• R5.3bn invested in Conventional Annuities – new investments
• Why is more than 90% being invested in Living Annuity products?
01
PG 1
L IVING ANNUITIES02
PG 1
WANT?
CONTROL
INVESTMENT CHOICEINCOME/DRAW DOWN
FLEXIBILITY
LEGACY ON DEATH
NEED?
UNCERTAIN
BENEFITS?
OWNERSHIP EASY TO UNDERSTAND
WHAT ARE YOU BUYING? INCOME? R1,000,00003
PG 1
R-
R5 000
R10 000
R15 000
R20 000
R25 000
R30 000
R35 000
R40 000
R45 000
R50 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Income Benefit Progression
LA Income (Max IDDR)
Mo
nth
ly In
com
e
IDDR: Initial Draw Down Rate
WHAT ARE YOU BUYING? INCOME? R1,000,00003
PG 1
R-
R5 000
R10 000
R15 000
R20 000
R25 000
R30 000
R35 000
R40 000
R45 000
R50 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Income Benefit Progression
LA Income (Max IDDR)
Start income R175,000 paMax Draw Down at Age 65
Mo
nth
ly In
com
e
IDDR: Initial Draw Down Rate
WHAT ARE YOU BUYING? INCOME? R1,000,00003
PG 1
R-
R5 000
R10 000
R15 000
R20 000
R25 000
R30 000
R35 000
R40 000
R45 000
R50 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Income Benefit Progression
LA Income (Max IDDR) LA Income (7.5% IDDR)
Start income R75,000 paMax Draw Down at Age 80 (61%)
Mo
nth
ly In
com
e
IDDR: Initial Draw Down Rate
WHAT ARE YOU BUYING? INCOME? R1,000,00003
PG 1
R-
R5 000
R10 000
R15 000
R20 000
R25 000
R30 000
R35 000
R40 000
R45 000
R50 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Income Benefit Progression
LA Income (Max IDDR) LA Income (7.5% IDDR) LA Income (6% IDDR)
Start income R60,000 paMax Draw Down at Age 93 (15%)
IDDR: Initial Draw Down Rate
WHAT ARE YOU BUYING? INCOME?03
PG 1
R-
R5 000
R10 000
R15 000
R20 000
R25 000
R30 000
R35 000
R40 000
R45 000
R50 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Income Benefit Progression
Income Benefit (MEIDDR) LA Income (Max IDDR) LA Income (7.5% IDDR) LA Income (6% IDDR)
Start income R51,982 pa
Mo
nth
ly In
com
e
IDDR: Initial Draw Down Rate MEIDDR: Maximum Equivalent Initial Draw Down Rate
YOU ARE ALSO BUYING A DEATH BENEFIT?04
PG 1
R-
R1 000 000
R2 000 000
R3 000 000
R4 000 000
R5 000 000
R6 000 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Death Benefit Progression
Death Benefit (MEIDDR)
Lum
p S
um
Dea
th B
enef
it
YOU ARE ALSO BUYING A DEATH BENEFIT?04
PG 1
R-
R500 000
R1 000 000
R1 500 000
R2 000 000
R2 500 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Death Benefit Progression
LA Death (6% IDDR)
Lum
p S
um
Dea
th B
enef
it
YOU ARE ALSO BUYING A DEATH BENEFIT?04
PG 1
R-
R500 000
R1 000 000
R1 500 000
R2 000 000
R2 500 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Death Benefit Progression
LA Death (7.5% IDDR) LA Death (6% IDDR)
Lum
p S
um
Dea
th B
enef
it
YOU ARE ALSO BUYING A DEATH BENEFIT?04
PG 1
R-
R500 000
R1 000 000
R1 500 000
R2 000 000
R2 500 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Death Benefit Progression
LA Death (Max IDDR) LA Death (7.5% IDDR) LA Death (6% IDDR)
Lum
p S
um
Dea
th B
enef
it
YOU ARE ALSO BUYING A DEATH BENEFIT?04
PG 1
R-
R1 000 000
R2 000 000
R3 000 000
R4 000 000
R5 000 000
R6 000 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Death Benefit Progression
Death Benefit (MEIDDR) LA Death (Max IDDR) LA Death (7.5% IDDR) LA Death (6% IDDR)
Lum
p S
um
Dea
th B
enef
it
DO WE KNOW WHAT WE ARE INVESTING IN?
IF WE BIFURCATE INTO COMPONENT PARTS
AND REPLICATE EXPECTED BENEFITS
WE CAN PLACE A VALUE ON EACH COMPONENT TO
POTENTIALLY UNDERSTAND THEM BETTER
05
PG 3
VALUE OF INCOME BENEFIT?06
PG 1
R-
R5 000
R10 000
R15 000
R20 000
R25 000
R30 000
R35 000
R40 000
R45 000
R50 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Income Benefit Progression
Income Benefit (MEIDDR)
Start income R51,982 paPV E[Income] R570,599
Inco
me
VALUE OF INCOME BENEFIT?06
PG 1
R-
R5 000
R10 000
R15 000
R20 000
R25 000
R30 000
R35 000
R40 000
R45 000
R50 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Income Benefit Progression
Income Benefit (MEIDDR) LA Income (6% IDDR)
Start income R60,000 paMax Draw Down at Age 93 (15%)PV E[Income] R655,881
Inco
me
VALUE OF INCOME BENEFIT?06
PG 1
R-
R5 000
R10 000
R15 000
R20 000
R25 000
R30 000
R35 000
R40 000
R45 000
R50 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Income Benefit Progression
Income Benefit (MEIDDR) LA Income (7.5% IDDR) LA Income (6% IDDR)
Start income R75,000 paMax Draw Down at Age 80 (61%)PV E[Income] R761,693
Inco
me
VALUE OF INCOME BENEFIT?06
PG 1
R-
R5 000
R10 000
R15 000
R20 000
R25 000
R30 000
R35 000
R40 000
R45 000
R50 000
65 70 75 80 85 90 95 100 105 110
Living Annuity Income Benefit Progression
Income Benefit (MEIDDR) LA Income (Max IDDR) LA Income (7.5% IDDR) LA Income (6% IDDR)
Start income R175,000 paMax Draw Down at Age 65 (100%)PV E[Income] R875,500
Inco
me
ALTERNATIVE BENEFIT DESIGN
1. Lump Sum Death Benefit of R1,000,000 increasing at 6% pa for 10 years
2. Lump Sum Death Benefit of R1,000,000 for 10 years
3. Lump Sum Death Benefit of R1,000,000 decreasing by R100,000 over
10 years
07
PG 3
DEATH – 10 YEARS, R1m INCREASING AT 6% pa08
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R1 400 000
R1 600 000
R1 800 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Death Benefit 1 (10 year, R1m Increasing Death)
PV E[Death] R298,819
Inco
me
Lum
p S
um
Dea
th B
enef
it
DEATH – 10 YEARS, R1m INCREASING AT 6% pa08
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R1 400 000
R1 600 000
R1 800 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Income Benefit 1 (10 year, R1m Increasing Death)
PA Death Benefit 1 (10 year, R1m Increasing Death)
PA Start income R63,878 pa23% higher than MEIDDRPV E[Income] R701,181
Inco
me
Lum
p S
um
Dea
th B
enef
it
DEATH – 10 YEARS, R1m INCREASING AT 6% pa08
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R1 400 000
R1 600 000
R1 800 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Income Benefit 1 (10 year, R1m Increasing Death)
LA Income Benefit 1 PA Death Benefit 1 (10 year, R1m Increasing Death)
LA Death Benefit 1
PA Start income R63,878 pa23% higher than MEIDDRPV E[Income] R701,181
Inco
me
Lum
p S
um
Dea
th B
enef
it
LA Start income R63,878 paPV E[Income] R690,877Max Draw Down at age 88 (31%)
DEATH BENEFIT – R1m FOR 10 YEARS09
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R1 400 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Death Benefit 2 (10-year, R1m Death)
PV E[Death] R220,029
Inco
me
Lum
p S
um
Dea
th B
enef
it
DEATH BENEFIT – R1m FOR 10 YEARS09
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R1 400 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Income Benefit 2 (10-year, R1m Death) PA Death Benefit 2 (10-year, R1m Death)
PA Start income R71,056 pa37% higher than MEIDDRPV E[Income] R779,971
Inco
me
Lum
p S
um
Dea
th B
enef
it
DEATH BENEFIT – R1m FOR 10 YEARS09
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R1 400 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Income Benefit 2 (10-year, R1m Death)
LA Income Benefit 2 PA Death Benefit 2 (10-year, R1m Death)
LA Death Benefit 2
PA Start income R71,056 pa37% higher than MEIDDRPV E[Income] R779,971
Inco
me
Lum
p S
um
Dea
th B
enef
it
DEATH BENEFIT – R1m FOR 10 YEARS09
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R1 400 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Income Benefit 2 (10-year, R1m Death)
LA Income Benefit 2 PA Death Benefit 2 (10-year, R1m Death)
LA Death Benefit 2
LA Start income R71,056 paPV E[Income] R740,894Max Draw Down at age 83 (50%)
PA Start income R71,056 pa37% higher than MEIDDRPV E[Income] R779,971
Inco
me
Lum
p S
um
Dea
th B
enef
it
DEATH BENEFIT – 10 YEARS, R1m DECREASING BY R100k pa10
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Death Benefit 3 (10-year, R1m decreasing)
PV E[Death] R109,519
Inco
me
Lum
p S
um
Dea
th B
enef
it
DEATH BENEFIT – 10 YEARS, R1m DECREASING BY R100k pa10
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Income Benefit 3 (10-year, R1m decreasing)
PA Death Benefit 3 (10-year, R1m decreasing)
PA Start income R81,124 pa56% higher than MEIDDRPV E[Income] R890,481
Inco
me
Lum
p S
um
Dea
th B
enef
it
DEATH BENEFIT – 10 YEARS, R1m DECREASING BY R100k pa10
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Income Benefit 3 (10-year, R1m decreasing)
LA Income Death Benefit 3 PA Death Benefit 3 (10-year, R1m decreasing)
LA Death Death Benefit 3
PA Start income R81,124 pa56% higher than MEIDDRPV E[Income] R890,481
Inco
me
Lum
p S
um
Dea
th B
enef
it
DEATH BENEFIT – 10 YEARS, R1m DECREASING BY R100k pa10
PG 1
R-
R200 000
R400 000
R600 000
R800 000
R1 000 000
R1 200 000
R-
R20 000
R40 000
R60 000
R80 000
R100 000
R120 000
65 70 75 80 85 90 95 100 105 110
Income and Death Benefit Progression
Income Benefit (MEIDDR) PA Income Benefit 3 (10-year, R1m decreasing)
LA Income Death Benefit 3 PA Death Benefit 3 (10-year, R1m decreasing)
LA Death Death Benefit 3
LA Start income R81,124 paPV E[Income] R786,890Max Draw Down age at 78 (68%)
PA Start income R81,124 pa56% higher than MEIDDRPV E[Income] R890,481
Inco
me
Lum
p S
um
Dea
th B
enef
it
CONCLUDING PERSPECTIVES
• What do you need and what do you want?• You cannot maximize your income benefit with a living annuity• Consider relative value – bifurcate living annuity benefits• We need to think about advice models for living annuities• We can potentially design better solutions
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PG 2
POST RETIREMENT INVESTING
