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INTRODUCINGPRIVATE 3rd PARTY PENSION SPONSORSHIPPLEASE MIND THE GAP For Professional Advisors, Employers & Trustees Only
IMPORTANT QUESTIONS• Excluding the reliance on 2nd generation wealth, how does the pension industry plan to solve the widening savings gap?• How will the industry re-engage consumers who have lost all faith and trust in pensions?• Has there been any real benefit from pension ‘improvements’ (switches) made in the last decade?• Were these ‘improvements’ necessary and did any valuable practical advice & education occur?
PAST vs FUTURE• Final Salary schemes are closing• DC Trust based schemes restrictive (admin)• GPP’s impacted by impending RDR changes• Is NEST really the answer or simply destined to deliver yet more of the same?• Is NEST a complete waste of £1bn?
INEVITABLE CONCLUSION• In reality, successes are too few to identify• Consumer confidence at an all time low• Trust has to be rebuilt• Consumer must be put first• Innovation is essential; not more of the same• Focus on the real enemy – ‘cost of delay’
KEY PENSION ANALYSIS• Average Employer contribution 5.5%• Average Employee contribution 3%• Average term to NRD 22.8yrs• Average pension fund value (1) £26,000• Average pension fund value (2) £55,000• Average scheme turnover 2-3 years• Default fund cash flow 85% to 100%(1) All pension plans, any size (2) Pension plans £1,500 and aboveSource AEGON DC Group Pension Data
INCOME SHORTFALL ANALYSISALL THINGS BEING EQUAL, THE VAST MAJORITY OF PEOPLE WOULDLIKE TO RETIRE WITH 50% OF THEIR PREVIOUS WORKING INCOMEON AVERAGE, WE ASSUME THAT A SHORTFALL OF AROUND £250,000 OF PENSIONFUNDING PER CLIENT WILL OCCUR ASSUMING CURRENT TRENDS CONTINUE
A DECADE OF RESTRUCTURINGCOMMON JUSTIFICATIONS FOR PENSION PLAN RESTRUCTURES• Reduce charges• Poor investment performance (default fund)• Poor administration• Lack of technology• Legislation changes• Providers withdrawing from the market
SCHEME DESIGN ANALYSISTYPICAL “90’s” SCHEME TYPICAL “00’s” SCHEME• Initial charges 5% to 40% • Single priced• 5% bid/offer spread • No initial charges• Loyalty units • No bid offer spread• Default fund - With Profits • Default fund – Lifestyle Tracker• 10 – 20 unit linked funds • Over 100 fund links• AMC’s – 1% to 1.5% p.a. • AMC’s – 0.35% to 1.5% p.a.• Early encashment penalties • Deferred Member Penalties• Effective RIY 1.4% to 3% • Effective RIY 0.35% to 1.5% EARLY MOST PROFITABLE PERIOD 0.35% RIY LEAVER 1.00% RIY PERIOD 1.40% RIY 3.00% RIY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
THE SAVINGS X FACTOR• But what are the key factors that influence long-term savings success MOST? How much is paid in i.e. Premium The length of investment term i.e. Term Asset allocation i.e. Modern Portfolio Theory Contract charges i.e. AMC THE REAL FOCUS HAS TO BE ON GETTING SUFFICIENT PREMIUMS INVESTED ASAP
CONFIDENCE CRISIS?MOST COMMON REASONS GIVEN BY EMPLOYEES FOR NOT JOINING APENSION SCHEME• No spare income• My home is my pension• No access• Benefit too far off• Not worth doing• Too complicated• Don’t trust greedy pension/investment firms
KEY CONSUMER POINTS• Ideal pension at retirement 50% of income• Limited risk preferred• Target investment returns agreed at outset• Protection if something goes wrong• Fees should not apply if investments fail• Access to savings in an emergency• Investment freedom
TACKLING THE BIG ISSUES• Pensions on their own will in most cases fail to deliver the ideal income based on DC averages currently operating• Employers cannot afford more• Employees cannot afford more• Society cannot afford more• Only pensions people think pensions are greatA revolutionary, innovative approach is required
3PPS CORE FOCUS• Extra funding support critical• Consumer focused to win back trust• Has to be more than just a pension involved• Practical advice and education programme• Empower small investors in DC schemes• Long-term view will help to reduce risk• Practical lifestyle solutions are essential
3PPS POTENTIAL BENEFITS• Improves financial outcome for savers• Reduce savings gap• Tackles consumer negativity• Provides extra flexibility• Helps with Employer budgets• Shifts liability to private sector• Improves workforce positivity• Provides opportunity for financial education
FOR MORE INFORMATIONEMPLOYEE BENEFIT CONSULTANTS / WORKPLACE DC SCHEMES / TRUSTEESPlease contact Darren Say, Managing Director 07966 069 829INVESTMENT GROUPS / NETWORKS / IFAS’S / ACCOUNTANTSPlease contact Pierre Coussey, Pension & Investment Strategist 07907 917 133COMPLIANCE / OPERATIONAL SUPPORT / TECHNICALPlease contact Ian Bullock, Operations Director 07896 252 061South East Regional Office T: 01279 899 002 E: firstname.lastname@example.org
IMPORTANT NOTICEThis document does not constitute personal advice. Should you have any doubt as to the suitability of an investment for your circumstancesyou should contact one of our advisors.All information and particulars contained in this presentation are for indicative purposes only. They are provided in good faith and are notintended to form part of any contract at this stage. Calculations and assumptions are provided to the best knowledge of RGP Consulting (UK)Limited but cannot be guaranteed and may be subject to change. No liability will be accepted for any inaccuracies, changes or damages arisingout of or in connection with the use of information in this presentation.All information regarding potential returns are examples only and are in no way guaranteed. The value of investments can fall as well as riseand past performance is no guarantee of future performance. No advice is given as to the suitability of purchasing a 3PPS investment solutionand we strongly recommend the use of an independent authorised professional advisor who can advise you on finance, pensions andinvestments. No tax advice is given and it is recommended that investors consult a tax specialist regarding their personal circumstances.Any tax reliefs referred to are those currently applying, but levels and the basis of, as well as reliefs from, taxation are subject to change. Theirvalue depends on the individual circumstances of the investor. Before transferring a pension you should ascertain whether any penalties willapply and carefully consider the overall impact of any investment you make.The materials and information contained herein do not constitute an offer or a solicitation of an offer for the purchase or sale of any securitiesin RGP Consulting (UK) Limited or any of its affiliates. Although this information was believed to be accurate as of the date prepared by RGPConsulting (UK) Limited or its affiliates, RGP Consulting (UK) Limited and its affiliates disclaim any duty or obligation to update suchinformation. This information is not intended to make any investment representations about RGP Consulting (UK) Limited or its affiliates andshould not be viewed as such.No representation or warranty is made by RGP Consulting (UK) Limited about the accuracy, reliability or suitability of the information, material,systems, services or products contained or discussed herein.RGP Consulting (UK) Limited, 5 Phoenix House, Hastingwood Road, Hastingwood, Essex CM17 9JTRegistered in England & Wales number 6529747.RGP Consulting (UK) Ltd is an Appointed Representative of Eden Associates, which is authorised and regulated by the Financial ServicesAuthority. Eden Associates’ FSA Register number is 459616. The FSA register can be found at www.fsa.gov.uk/register/.