©UFS 1 Pension Reformer Why Now? 2014 Budget – Advice Update Richard Sheppard Autumn/Winter 2014

What this Session Covers The Background The Facts The Unknowns The Pathway

Learning Objectives Understand the backdrop - why change was needed and the requirement for professional financial advice that has followed. Be aware of the family and social change brought about from these changes and the challenges they bring for the adviser. Be able to manage the risk that will emerge alongside the opportunity.

How it began – Autumn 2013 Time for Change

Minus the Video Clip 5

Why the regime has to change

Population aged 90+ in England & Wales Source - ONS

Centenarians by gender in England & Wales Source - ONS

An International Comparison – number of people aged 90+ in 2012 Source - ONS

Age Change in the UK Population Source - ONS

March 2014 April 2014 April 2015 Drawdown limit increases to 150% Triviality/ small pots limits increased Not required to secure an income if taking TFC Annual allowance reduces to £40k Lifetime allowance reduces to £1.25m – fixed & individual protection Full access to DC pensions pots Free impartial “non-advice” What we know about the new regime ? Do… Show… Say…

21/22 July The Government and FCA Response Key takeaways Tax framework Tax charge on death Tax avoidance safeguards Pension age to increase Guidance Guarantee –funded by regulated firms with levy Standards for Guidance Guarantee established

The Tax Framework Who pays the tax? Who remits the tax? At what rate? What if this is done in May 2015?

Projected Tax Impact Source – HMRC HC1104

Projected Tax Impact 2014/15Nil 2015/16£300m 2016/17£600m£900m 2017/18£900m£1,800m 2018/19£1,210m£3,010m Source – HMRC HC1104

Projected Tax Impact Source – HMRC HC /15Nil 2015/16£300m 2016/17£600m£900m 2017/18£900m£1,800m 2018/19£1,210m£3,010m 20%= £6,050m 20%= £15,050m Plus PCLS !

Projected Tax Impact Source – HMRC HC /15Nil 2015/16£300m 2016/17£600m£900m 2017/18£900m£1,800m 2018/19£1,210m£3,010m 40%= £3,025m 40%= £7,525m Plus PCLS !

What happened next….?

Weighing Up the Balance Income for Life Capital in the Bank

The American Experience Source: SSgA’s July 2013 Biannual DC Investor Survey

USA Experience US$220 billion in annuities were written in 2012 Annuities account for 9 per cent of the US$20 trillion US retirement market. These are typically fixed duration annuities and may become a key part of future retirement planning in the UK Deloitte 20 th March 2014

The Australian Experience 32%Buy a home/pay for home improvements/pay off mortgage 7%Invest the money elsewhere or put it in bank account 21%Keep it invested it in a pension scheme 19%Buy or pay off a car 14%Pay for a holiday 12%Clear other debts 5%Help family members 4%Purchase an immediate annuity 17%Other Source: Challenger Retirement Income Research How much super do Australians really have?

Modern reality of Retirement

The Expenditure Experience of Older Householder Typical Annuity benchmark Source: Defaqto

What’s the regulator saying? Pension providers and intermediaries should be making changes to their processes to ensure customers are not put at a disadvantage while they are making their retirement income decision Advisers must provide suitable advice to meet the needs and circumstances of individual customers making retirement income choices – this should take into account the 27 March 2014 changes in legislation. Advisers should also consider, and make it clear in the advice they provide, the implications for customers of the known changes proposed for April 2015.

The Risks are still the same Longevity Risk Market Risk Annuity Risk Inflation Risk Client Risk

Building the Income Non- discretionary Spending Discretionary Spending Luxury Spending The Bills The Holidays ! The Extras

Weighing Up the Balance Income for Life Capital in the Bank

Learning Objectives Understand the backdrop - why change was needed and the requirement for professional financial advice that has followed. Be aware of the family and social change brought about from these changes and the challenges they bring for the adviser. Be able to manage the risk that will emerge alongside the opportunity.

Important information This presentation has been provided to recipients for information only and has not been approved as a financial promotion. Not withstanding the foregoing, this presentation is only being provided to professional financial advisers. This presentation does not constitute an offer or inducement to purchase or subscribe for securities in a product or fund. The information in this presentation may not be complete and may be changed, modified or amended at any time and is not intended to, and does not, constitute any representations and warranties of MetLife Europe Limited. The information contained in this presentation is intended to provide general information only and does not take into account individual objectives, financial situation or needs. Please remember, if a guarantee option is not selected the value of investments can fall as well as rise. An investor may not get back the amount invested. Past performance is no guide to future performance. Investments in MetLife products are not like a bank or building society which accrue interest. All reasonable care has been taken in relation to the preparation and collation of this presentation. Except for statutory liability which may not be excluded, no member of MetLife accepts responsibility for any loss or damage resulting from the use of or reliance on this presentation by any person. The information is taken from sources which are believed to be accurate but no member of MetLife accepts any liability of any kind to any person who relies on the information contained in it. The copyright of this presentation and any documents supplied with it and the information contained therein is vested in MetLife. They should not be copied, reproduced or redistributed without prior consent. MetLife Europe Limited (trading as MetLife) is authorised by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. Registered address: 20 on Hatch, Lower Hatch Street, Dublin 2, Ireland. Registration number UK branch address: One Canada Square, Canary Wharf, London E14 5AA. Branch registration number BR Web Site:

©UFS Security & Flexibility Guaranteed Drawdown Richard Sheppard Autumn/Winter 2014

Learning Objectives Understand the advantages and disadvantages of pensions vs ISA in the new regulatory environment. Be aware of the potential product development that will follow the introduction of Pensions Freedom. Be aware of the role of unit-linked guarantees in the provision of flexibility with certainty.

The Three Stages Getting Money In While it is In Getting it Out

The Savings Dilemma Pension vs ISA Let battle commence!!

Pension vs ISA

What are external parties saying?

Building the Income Non- discretionary Spending Discretionary Spending Luxury Spending The Bills The Holidays ! The Extras

Back to basics FTSE 100 performance Source: Yahoo Finance, February 2014

Sequence of returns Average annual return in both cases is 10.39% 39

Sequence of returns The two portfolios, £100,000 invested with £5,000 income increasing at 3.5% per annum taken annually in advance 40

New annuity A type of insurance policy that provides an income in exchange for a lump sum from your pension fund Drawdown Drawdown allows you to take income directly from your pension fund Guaranteed drawdown Provides an income that you cannot outlive with all the flexibility of drawdown Guaranteed income for life  Income protected from market falls  Fund remains invested - benefit from growth  Guaranteed lock-ins of growth  Income flexibility Limited Death benefits Limited Pension income – the options

Tax efficiency of pensions Tax Rate in / out Basic rate (out) Higher rate (out) Additional rate (out) Basic rate (in) +6.25%-12.5%-17% Higher rate (in) +41.6%+16.6%+10.4% Additional rate (in) +54.5%+27%+20.4% Assumption: PCLS is taken in full by investor This information is based on our understanding of current legislation, taxation law and practice, which may change.

Retirement Portfolio

The Toolkit Whether your clients want to –Guarantee an income now or in the future; –Enjoy the certainty of a capital guarantee; –Or have the freedom to access their pension fund at any point in the future.

The Toolkit To help demonstrate the freedom and choice now open to clients, we are developing new retirement options support tools including: –Client facing video –Posters and prospecting letters –New sales aids

Who may want consider a ULG? Clients wishing to retire in the near future Cautious drawdown clients Those with a low capacity for loss Clients keen to protect their family if something happens Investors wanting income certainty from their pension fund Those wanting to ensure their income outlives them ULG

How to include in the process All aspects of the plan need to be accounted for and explained. Does the investment fit? Fact-find details the soft facts using clients own words. Suitability reports compares costs and states why the plan matches the clients needs.

Learning Objectives Understand the advantages and disadvantages of pensions vs ISA in the new regulatory environment. Be aware of the potential product development that will follow the introduction of Pensions Freedom. Be aware of the role of unit-linked guarantees in the provision of flexibility with certainty.

Important information This presentation has been provided to recipients for information only and has not been approved as a financial promotion. Not withstanding the foregoing, this presentation is only being provided to professional financial advisers. This presentation does not constitute an offer or inducement to purchase or subscribe for securities in a product or fund. The information in this presentation may not be complete and may be changed, modified or amended at any time and is not intended to, and does not, constitute any representations and warranties of MetLife Europe Limited. The information contained in this presentation is intended to provide general information only and does not take into account individual objectives, financial situation or needs. Please remember, if a guarantee option is not selected the value of investments can fall as well as rise. An investor may not get back the amount invested. Past performance is no guide to future performance. Investments in MetLife products are not like a bank or building society which accrue interest. All reasonable care has been taken in relation to the preparation and collation of this presentation. Except for statutory liability which may not be excluded, no member of MetLife accepts responsibility for any loss or damage resulting from the use of or reliance on this presentation by any person. The information is taken from sources which are believed to be accurate but no member of MetLife accepts any liability of any kind to any person who relies on the information contained in it. The copyright of this presentation and any documents supplied with it and the information contained therein is vested in MetLife. They should not be copied, reproduced or redistributed without prior consent. MetLife Europe Limited (trading as MetLife) is authorised by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. Registered address: 20 on Hatch, Lower Hatch Street, Dublin 2, Ireland. Registration number UK branch address: One Canada Square, Canary Wharf, London E14 5AA. Branch registration number BR Web Site: