Last December, FRC’s (Financial Reporting Council) Board for Actuarial Standards published a new version (2.0) of Technical Memorandum (TM1): Statutory Money Purchase Illustrations (SMPI). Two key areas of change embedded in the document is in the updating of mortality assumptions and the taking into account of potential investment returns when setting the long-term investment assumptions used in projections.
Posts Tagged ‘Draft’
SMPI an opportunity not a chore
Friday, January 20th, 2012Post-Retirement Market Boom creates opportunity for platforms
Friday, June 17th, 2011An industry-wide study that we commissioned in April 2011 found that both IFAs and pensions providers alike predict a strong future for the annuity market despite the imminent abolition of compulsory purchase of annuities aged 75. Over half of the sample of more than 120 IFAs we questioned (52%) think that the value of the annuity market will stay the same as it is today or grow in the future.
Providers are no less positive about the annuity market – 42% think the annuity market will remain at the same size while 6% think the market will grow. These findings seem illogical in view of the pension reform but we think they point to the beginning of a boom in the post-retirement market which annuities will benefit from. More interestingly, wrap platforms and Direct to Consumer (D2C) platforms may be best placed to take advantage of this boom. There are three major factors at work which lead us to this conclusion:
Firstly, and most obviously, is the much-discussed demographic time bomb. ‘Baby Boomers’ are retiring. The most significant and consistent rise in birth rates in the developed world in the last century was between 1946 and 1957. A person born in 1946 at the beginning of this boom is 65 years old this year and in most cases is looking to retire as soon as he or she can. Nearly 658,000 UK-based men and women will turn 65 this year, the largest number to reach that milestone in a single year since records began, according to the Department for Work and Pensions. Naturally a percentage of these will annuitise their pensions investments in the UK even if it is no longer compulsory by age 75.
Secondly, the voluntary nature of annuities combined with new capped, flexible drawdown options, we predict, actually provides a significant shot in the arm for the post-retirement market. Choice creates opportunity and engages retirees in making real retirement planning decisions which will influence the size of their bank balances and quality of life in retirement.
Finally, the improvement and subsequent proliferation of modeling, illustrations, calculations and general administration tools to help select the right options; makes wrap platforms uniquely well positioned to take advantage of an inevitable post-retirement bonanza. You only have to look at the Minimum Income Requirements (MIR) calculations demanded for flexible drawdown to realise the need for strong administration around these choices. Platforms can enable much more post-retirement business to be administered more quickly, and in compliance with tightening disclosure regulation, than was naturally possible before.
Some predict an emergence of different types of wraps addressing different parts of the market and based on our findings we would definitely predict success for platform providers focusing on the at and/or post-retirement market. .
There is even strong market demand for the Post-Retirement Wrap. The same survey found that 62% of IFAs think a range of annuities should be offered on platforms and said they would purchase them this way, on behalf of clients, if annuities were on platform; while more than two thirds (68%) of providers thought moving annuity purchase onto platform was a good idea.
The findings suggest that IFAs are perhaps already seeing an opportunity to specialise in helping a growing group of customers in post-retirement. If IFAs can migrate customers onto the wraps that are already geared up for this segment of the market it will be able to serve many more retirees more profitably and successfully because they will be able to provide the flexibility and service levels that they are looking
There is a clear opportunity for current and even new entrant wrap platforms and D2C platforms, to position themselves as comprehensive, blended post-retirement service providers, supporting a growing group of semi- and fully-retired people. Many of these people will want to actively manage their investments working with IFAs or alone. Shares, commercial property, annuities and drawdown options can all be handled from one single wrap. Indeed we may see the Post-Retirement Wrap emerging as at least as strong a niche as the employee-focused Corporate Wrap which has dominated industry discussion in recent months.
Abolition of compulsory annuities proves most popular Pensions Reform according to new IFA survey by Dunstan Thomas
Friday, June 17th, 2011Dunstan Thomas survey garners views from over 16,000 IFAs as they prepare for RDR and Wrap Platform Asset Migration Boom
IFAs think the abolition of compulsory annuities will benefit the consumer more than any other major Pension Reform being pushed through this year. 39% of IFAs questioned in last month’s online survey considered this the most beneficial reform while 30% selected auto enrolment as the most beneficial reform for consumers. One in five (20%) said that unbundling of charges would deliver the most benefit.
Over two thirds of IFAs (69%) think the new qualification and training requirements demanded of them by RDR, renders provision of independent financial advice to the mass market quite simply unaffordable.
Increasing transparency around charges is broadly welcomed by IFAs – over three quarters of them (77%) backed full unbundling of charges and 62% gave the thumbs up to clear communication of the impact of charges on performance or Reduction in Yield as it is sometimes called.
But understandably IFAs are divided on the merits of banning commission payments – over two thirds (68%) remain against this move; while 72% stated that the FSA’s judgement that selecting only one wrap platform for the transfer of assets of the majority of clients will have a’ negative impact’ for clients.
They also think that the FSA’s tight definitions of Independent and Restricted advice is not the way to go – 72% thought the FSA had got these definitions wrong.
The audience was virtually split down the middle by some of the other disclosure related changes: 44% said that banning of cash rebates from providers to advisers was the right move while 47% said banning of cash rebates from fund managers to platforms (now widely expected by the industry) was a good move.
Three quarters of the sample intend to remain whole of market IFAs after RDR despite the increasing demands being placed on them; while nearly half (43%) think that 16-25% of IFAs will cease trading because of the new demands placed on them by RDR and 20% think 26-40% of IFAs will disappear.
Despite the pressures imposed by RDR the single largest financial pressure being placed on IFAs this year is actually coming from rising levies being exacted by the Financial Services Compensation Scheme to compensate clients for assets lost as a result of an increasing number of investment firms that are failing – 39% put this issue as the largest drain on their coffers in 2011, whereas 24% cited RDR preparations as the most costly area this year. Transitioning from commission to fee-based advice was the largest financial pressure for 22% of firms questioned.
But it is not all gloom and doom so where are IFAs seeing growth this year? Asset Migration onto wrap platforms is seen as the key growth strategy for 16% of firms while 12% see ‘deepening our expertise in a particular area of the market’ as the route to growth. A slightly smaller number (11%) are outsourcing more aspects of what they do to specialists (e.g. Discretionary Fund Managers) to find efficiencies. 10% are acquiring new business by buying other IFA firms as the consolidation trend picks up pace.
The most significant criteria for wrap platform selection was range of funds and fund managers on offer (with a weighting of 77), closely followed by service levels (69) and unbundling of charges capability (45).
In terms of specific functionality ‘Good selection of risk profiling, planning and rebalancing tools’ was voted the most important factor in wrap selection by 30% of respondents. Online transacting capability was the second most important functional requirement (25%); while strong integration with ‘our existing Front Office and desktop systems’ came in third (16%).
Wrap asset migration speed and progress is also worthy of exploration and the figures show some acceleration in asset migration activity:
• 15% have moved 11-20% of customer assets under management onto wraps already.
• 9% have moved 21-30%
• 15% have moved 31-40%
• 10% have completed 41-50%
• A further 10% have completed 51-60%
But if you ask what percentage of assets they expect to have moved at the end of the migration process the figures are much higher:
• Nearly a third (29%) will move more than 70% of assets
• 16% will move 61-70%
• 13% will move 51-60%
The majority of IFAs expect a near tripling of the total Assets Under Management (AUM) on platform within the next 18 months: 37% predicted £300bn of AUM will be on platform by the end of 2012, up from £120bn today. An even higher number (40%) predict a doubling of AUM over the next 18 months to reach £200bn which is significant in itself.
And those assets won’t just be in investment funds and cash, 62% of IFAs think a range of annuities should be offered on platforms and would purchase this way if it was available. Over half of the sample (52%) thinks that the value of the annuity market will stay the same as it is today or grow despite the advent of the abolition of compulsory purchase of annuities at age 75.
Over half of IFAs (51%) said that wrap platforms need to get better at enabling quick and easy re-registration of assets between platforms. Re-registration capabilities are required by the RDR deadline of 31st December 2012 and the technology is already there to deliver it. Considerable industry pressure demanding this capability has led most platforms to prioritise this capability in recent months.
Chris Read, chairman, Dunstan Thomas, commented on the findings:
“This is the most comprehensive snapshot we have ever commissioned into the views of the bulk of the IFA market. It gives us a great insight into a market which is changing fairly rapidly as hundreds of billions of pounds of assets move from legacy policies onto wrap platforms.
“We also see the consolidation trend accelerating, while those looking for growth are deepening expertise and using technology and specialist outsourced service providers to serve customers more efficiently and proactively. Although RDR looks tough for IFAs right now, it is already driving many firms to plan how they can serve more customers better and transform their businesses by so doing.”
Dunstan Thomas commissioned Agility PR to fulfil the above survey of 16,340 IFAs. Agility PR sent questionnaires via an online survey provider and obtained a total of 127 fully completed questionnaires within a two week period between 21st April and 5th May 2011. This equates to a response rate of 0.76%.
Major step forward in strategy to build growth through focusing on ‘at retirement’ and workplace savings
Thursday, March 31st, 2011Dunstan Thomas help power AEGON’s platform.
AEGON UK today announces it will enter the platform market later this year, as it accelerates its plans to focus on the ‘at retirement’ and workplace savings markets to drive future growth. This represents a significant investment in the company’s future development and underlines AEGON’s long-term commitment to the UK market.
CP 11/03 – Illustrations –“even though they are clearly a speculation and not a prediction, they can show the potential for variable returns and may help consumers with planning for future needs.”
Thursday, March 10th, 2011Last month the FSA consultation paper CP 11/03 was released to improve pension scheme disclosure. In effect the consultation looks to ensure firms give consumers enough information about a product’s charges, risks and main features, so as to enable them to make an informed decision.
ASP admin chaos predicted by Dunstan Thomas as Finance Bill transfer deadline looms
Thursday, January 20th, 2011Retirement and investment software provider Dunstan Thomas warned this week that advisers, providers and administrators of Alternatively Secured Pensions (ASPs) will be forced into advisor and administration meltdown by changes demanded by the new Finance Bill which come into effect on 6th April.
Not only will advisers need to inform clients of the changes and their options but administrators will need to update their systems and processes and then start transferring funds of all ASP clients, all in less than three months time, from 6th April onwards.
ASPs will be scrapped at the start of the individual ASP holder’s drawdown pension year in which 6th April 2011 falls. All ASP holders will need to move funds out of their existing arrangement into a capped or flexible drawdown scheme before their next drawdown year, which could be as early as the 7th April 2011. So some ASP administrators will be making these changes simultaneous with the tax year end changes which already generate a glut of activity.
The burden will also fall heavily on advisers who may find themselves caught in the middle -interpreting the options for clients on the one hand and being exposed to administrative chaos on the other. Some may even find themselves using providers that do not want to offer all options straight away post 6th April.
In addition, complexities associated with reviewing clients’ current income limits compared to their new, probably increased, income limits and to then pay the difference, will add to the administrative nightmare, says Dunstan Thomas.
Administration and client communication problems will deepen still further if administrators’ systems, documents and processes have not been updated in time to incorporate these changes. Clients will have the option to go into a capped drawdown or flexible drawdown arrangement, if the provider chooses to provide flexible drawdown from the 6th April.
Flexible drawdown arrangements are further complicated by the need to prove £20,000 annual pension Minimum Income Requirement (MIR) before being allowed to extract more than the 100% of Government Actuary’s Department (GAD) approved figures offered within a capped arrangement.
Natanje Holt, managing director, Dunstan Thomas, explained:“To see the end of ASPs is a positive step for the industry and the Government has listened well and acted quickly. However they have moved far too swiftly for the industry to implement the necessary changes effectively. ASP clients in particular may feel aggrieved when their cases are not handled efficiently. As it is, all parties have less than three months to prepare for multiple changes demanded by the Bill.
“Systems and processes will stretched to the limit with changes associated with Pension Input Periods, the changes around capped drawdown, implementing flexible drawdown and monitoring of MIR documentation.
Denise Gravatt, head of SIPP administration from platform Ascentric added to this: “As we are relatively new to the market we are in the fortunate position of only having a few ASP clients, but I do have sympathy for the larger providers as it will be very difficult for them to process these Finance Bill and tax year end changes simultaneously and then feed all these changes through to their payroll systems in time.”
Dunstan Thomas is already working flat out with many of its clients to ensure compliance when the new Finance Bill goes on the statute book.
Restricting pensions tax relief through existing allowances
Saturday, November 13th, 2010We have reviewed the HMRC document “Restricting pensions tax relief through existing allowances – a summary of the discussion document responses” which can be found at http://www.hm-treasury.gov.uk/d/restricting_pensions_summary141010.pdf and have looked at the impact on Imago Back Office.
