LV= adding real value to your client’s retirement planning including our new Protected Retirement Plan For financial adviser use only

Transfer opportunities – remember ERIC? A bit of help with J0 A new product from LV= How we can help Feedback and questions Agenda

Issues that still concern ERICs Final salary schemes are closing to both new and existing members Choosing the right options Balancing risk and reward appropriately in this low interest rate environment Consolidating retirement funds Need for advice is greater than ever

Defined benefit pension schemes What does the future hold? –Costs are major issue for many employers –More are closing schemes to new employees –Rentokill Initial started a new trend What protection do employees have? –Whilst employer is solvent –If employer ceases to be solvent

Effective date 6 April 2005 Financed by a levy on eligible occupational schemes Since 2006/07 levy is 80% risk-based Covers all private-sector defined benefit schemes Pays out if employer suffers an “insolvency event” Pension Protection Fund (PPF)

How a scheme enters the PPF Prescribed insolvency event has to have occurred Assessment period then starts –Lasts at least 12 months –No new members –No transfers out –Benefits that are paid out can only be up to the PPF level

PPF - levels of compensation 100% for those over NRD or in receipt of ill-health pension or dependant’s pension 90% for others Capped at £33, from 6 April 2010 (NRD 65) –Thus maximum benefit is £29, Spouse pension of 50% Increases in pension for post 6 April 1997 service but capped at 2005 LPI basis (ie: RPI capped at 2.5%)

Question worth 7 marks The PPF and J04 Member of final salary scheme concerned about pension benefits if employer goes out of business. What are the safeguards which: a)Protect the pension scheme assets prior to the winding up of a final salary scheme; (4 marks) b)Protect the pension benefits of members on wind up. (3 marks)

Model answer The PPF and J04 a)Scheme assets are held in trust / the separation of employer and scheme assets Member nominated trustees / trustees have responsibility to protect member’s interests. Scheme specific funding / the scheme must meet its Statutory Funding Objective / recovery plan The Pensions Regulator b)The Pension Protection Fund if the employer becomes insolvent and the scheme is underfunded/no chance of the scheme being rescued. 90% deferred / 100% pensioner.

Question worth 6 marks The PPF and J04 Client aged 67 took early retirement from his final salary scheme in Scheme has NRA of 65 and he had been a member for 30 years. Client has a pension of £34,500 pa RPI linked with 2/3 spouse pension Benefits now subject to the PPF as the company has become insolvent and the scheme is underfunded. Explain with reasons, the extent to which client’s income, including the spouse’s pension will be protected under the PPF.

Model answer The PPF and J04  100% of client’s scheme pension of £34,500 will be protected because Gerald has reached scheme’s NRA  The increases to his pension in payment will be reduced to the RPI to a maximum of 2.5% per annum in respect of post 6 April 1997 service  The spouse’s pension will be reduced to 50% of the client’s pension

So who is going to value your advice most? People who are worried about their employer –High earners –One firm people –Future inflation concerns

Issues to consider Transfer Value Analysis (TVAS) Reports –Provides a Critical Yield required by transfer value to match benefits given up Benefits are then not guaranteed Death benefits need to be compared Sometimes trustees will increase transfer value to offload liability

Reasons to be careful FOS will side with the client in most disputes. Issues which need to be considered: 1. Time to retirement 2. Percentage of overall pension provision 3. Client’s attitude to risk 4. Critical yield 5. Ongoing pension provision (really part of 2 above) 6. Client’s exposure to investments 7. Client’s occupation 8. Must be a good reason to transfer

Need to demonstrate new plan is more suitable than the old contract Easy for clients to complain about transfers, but –For appropriate clients profitable source of business –Need to ensure clients treated fairly and clear reason for transfer –ie: existing plan did not meet their needs –Evidence this with objective comparison of features, benefits and charges of existing plan and alternatives considered –Clearly document reasons for transfer in suitability report Transfer issues

Summary of opportunities Scheme is believed to be in severe financial trouble or is being wound up – PPF and transfer opportunities Client wants to retire early and scheme does not permit –Client must need the income –Client appreciates income may be lower then at normal retirement age Client or spouse is in poor health/smoker at retirement Client who want more (less) for their spouse

Market approach… room for innovation secure income upfront decision lifelong commitment annuities drawdown emerging 3 rd way market… flexible annuities unit linked annuities with profit annuities guaranteed drawdown simplified drawdown flexibility, within limits high minimum investment investment risk

PROTECTED RETIREMENT PLAN A new solution from LV= Ease your clients into retirement…

The plan allows your client to choose the following at the start: their required plan term any income amount between nil and the maximum limits set by GAD a fixed level or increasing regular income a choice of death benefits. Breathing space

As long as your client lives until the end of the term, the plan provides a guaranteed maturity amount. They can then use this to: buy an annuity buy another Protected Retirement Plan, or invest in an unsecured pension or an alternatively secured pension (ASP) ….whatever suits their circumstances and needs at that time. Breathing space

A client who …. likes the idea of an annuity, but –doesn’t want to lose control of their pension fund? –worries that their health may change in the future? –doesn’t want to commit to something that may not be suitable in five or ten years time? A retirement income product that allows them a bit of breathing space could be just the thing they need……… An ideal solution for…

However, your client may be better placed with an annuity, USP or deferred annuity, instead of a Protected Retirement Plan, if they: are currently in poor health and may already benefit from enhanced or impaired rates want the additional flexibility of income drawdown want more investment control want a guaranteed level of income for life, that a traditional annuity can provide are in a final salary pension scheme, where a transfer to a money purchase pension may not be in their best interest Considering other options

These can provide a lump sum, continued income, or both, if the client dies during the term of their plan. Your client chooses their plan death benefits at outset. a dependant’s income guarantee period Value Protection A range of death benefits options…

Has 5 years left on her mortgage and would like a fixed level of income of £400 per month until age 60 as she reduces her hours leading up to retirement.  Fixed income and known maturity value from her PRP.  Adds in Value Protection for her adult children in the event of her death during the term of the plan.  Allows flexibility in 5 years’ time when she will be eligible for the State Retirement Pension. Scenario 1 – Heidi Fox, widow aged 55 InvestmentIncomeGMV (with VP) £100,000£4,800 pa£87,356 LV quotes – April 2010

 Allows flexibility in 5 years’ time when he will be eligible for the State Retirement Pension.  At 65 his health has deteriorated – higher blood pressure and diagnosed with angina. Scenario 2 – Paul Leigh, single aged 60 At ageInvestmentIncomeGMVAnnuity Type 60£95,000£4,505 pa£82,452Protected Retirement Plan 65£82,452£6,601 paN/AEnhanced Lifetime Annuity (LV= rates) LV quotes – April 2010 He is reasonably healthy – a bit of high blood pressure and feels he may qualify for an enhanced annuity in the future. Looking to supplement his income until State Pension Age. Has £95,000 in a group personal pension.

 Takes 120% of GAD as income  Accepts GMV will be lower but wants to provide best for his wife during her lifetime  Value Protection – just in case Scenario 3 – Mr & Mrs Ledger (60 & 59) At ageInvestmentIncomeGMV (with VP) 60/59£60,000£4,608 pa£32,138 70£32,138£2,400 paLifetime annuity (Canada Life)* *FSA website – April 2010 Mrs Ledger has been diagnosed with cancer and therefore, they are concerned about what dependant benefits may be needed. Mr Ledger has taken early retirement to look after his wife and decides to invest £60,000 with 100% Value Protection but NO dependant’s income over a 10 year term. Sadly 7 years later Mrs Ledger dies.

Its likely to be something people will not be familiar with Outlining all the options adds value to your business Helps maintain reasons to speak to clients Have you got clients who you would want to recommend this product to? Protected Retirement Plan

People need advice in this market place One-off decisions Consider all the options Make sure it works for you and your client Let us help you in your market Summary Please complete the feedback form – we do read them

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For financial adviser use only. This presentation is based on our understanding of legislation applicable in England and Wales and HM Revenue & Customs practice as at 29 April 2010 which may change in the future. We cannot accept responsibility for any action arising as a result of the information contained in this presentation. LV= is a registered trade mark of Liverpool Victoria Friendly Society Limited (LVFS) and a trading style of the Liverpool Victoria group of companies. LVFS is a member of the ABI, AMI, AFS and ILAG. Authorised and regulated by the Financial Services Authority, register number NM Pensions Trustees Limited, (registered in England No ), act as Trustees and Scheme Administrators. Authorised and regulated by the Financial Services Authority, register number Registered address for all companies: County Gates, Bournemouth BH1 2NF. Tel: /10