FCA Annuity Review For financial advisers only – not retail clients

Agenda Why needed? Main findings What next for providers/advisers?

Agenda Why needed? Main findings What next for providers/advisers?

The Retirement Market USP/VA £1.20bn Annuity £14.05bn WP £1.18bn UL £0.12bn Includes £4.5bn of ‘enhanced’ annuities ABI, Q Quarterly MSE Data

Are people getting a good deal?

Source: ‘ABI – Retirement Choices: Baseline to measure effectiveness of the code of conduct’ May 2013 Aware of the OMO? People ‘shop around’? Change provider? ABI Key Findings c30% change provider

Agenda Why needed? Main findings What next for providers/advisers?

Providing certainty in uncertain times SII

The cost of inertia How many consumers who purchase their annuity from their existing provider could get a better deal on the open market? FCA Thematic Review of Annuities February 2014

The numbers

‘average’ increases - standard FCA Thematic Review of Annuities February 2014

‘average’ increases - enhanced FCA Thematic Review of Annuities February 2014

Important notes! We compared annuity rates offered to existing pension customers to the average of the top three rates available on the open market We used a single ‘health’ factor – smoking – to represent eligibility for enhanced annuities FCA Thematic Review of Annuities February 2014

How income can vary between providers and types of annuity Source: AMS portal and Partnership September Based on 65 year old with £50,000 pension fund, who has had a heart attack. Figures show best available income. Single life. Payable monthly in advance. No guarantee period. No escalation For illustration purposes only

Calculation to show fund needed to give £3,434 pa using existing rate on a pro-rata basis, using rates from previous slide. For illustration purposes only The value of advice £16,705

….it is also important that they: Convert their pension to an annuity at the right time for them – (e.g. it may be more appropriate for them to use drawdown initially or to defer taking an income) Buy the right ‘shape’ of annuity for them – (e.g. single life or joint life, level or escalating, enhanced or standard, and with or without guarantee) It’s not just ‘rate’

Annuity timing Pauline, aged 65 Fund Value (after PCLS)£50,000 Annuity available at 65£3,482 pa Fund at age 68£59,550 Annuity available at 68£4,001 pa Would take until age 88 to recoup the ‘lost’ income! Source: Partnership November 2013 Single life annuity. Single life. Payable monthly in advance. No guarantee period. Level income. 6% net pa growth rate (net of 1% charge) assumed between 65 and 68. This forecast is not a reliable indicator of future performance and investments may grow at higher or lower rate than assumed Conditions: Diabetes, High Blood Pressure, Overweight. For illustration purposes only

Level versus escalating income Source: AMS portal and Partnership September Based on 65 year old with £50,000 pension fund. Figures show best available income. Single life. Payable monthly in advance. No guarantee period. Level income (no escalation) vs fixed increase of 3% pa For illustration purposes only

Acceleration in the last five years: of the use of individual underwriting and the growth of enhanced annuities.. Provider Behaviour …Overall standard annuities offered to existing pension customers were expected to be more profitable than annuities written in the open market. Profitability may be higher for standard annuities when compared to enhanced annuities….

Little competition in standard annuities

Competitive enhanced annuity market

Agenda Why needed? Main findings What next for providers/advisers?

Retirement Income market study – (including annuities and drawdown) Identify ways of improving consumer engagement to prompt shopping around look at market dynamics – (for example, patterns of market entry and exit) to understand what drives the high levels of concentration observed in parts of these markets look at how these markets are likely to develop in the future – in response to changing retirement patterns and needs. FCA next steps FCA Thematic Review of Annuities February 2014

More chance of losing out… Those with small funds – less choice Not shopping for Enhanced annuities CHANCE Your Annuity Matures Collect £10 CHANCE Your Annuity Matures Collect £10

The effect of adviser charging Fund after PCLS Adviser Charge Net Purchase Price Income Worst Standard £50,000Nil£50,000£2,743 Best Standard£50,000Nil£50,000£3,076 Best Standard £50,000£1,000£49,000£3,014 Enhanced£50,000Nil£50,000£3,780 Enhanced£50,000£1,000£49,000£3,704 Retiree aged 65, best rate from AMS and Partnership rates. December Based on fund after PCLS, pro-rated for adviser charge. Single life. Payable monthly in advance. No guarantee period. Level income Enhanced based on diabetes, high blood pressure and overweight For illustration purposes only

The effect of adviser charging Fund after PCLS Adviser Charge Net Purchase Price Income Worst Standard £20,000Nil£20,000£1,097 Best Standard£20,000Nil£20,000£1,230 Enhanced£20,000Nil£20,000£1,512 Enhanced£20,000£500£19,500£1,474 Retiree aged 65, best rate from AMS and Partnership rates. December Based on fund after PCLS, pro-rated for adviser charge. Single life. Payable monthly in advance. No guarantee period. Level income Enhanced based on diabetes, high blood pressure and overweight For illustration purposes only

Annuities remain the vehicle for most people Underwriting becoming a significant option Adviser-charging for ‘real’ cost available Summary

Thank you Partnership is a trading style of the Partnership group of Companies, which includes; Partnership Life Assurance Company Limited (registered in England and Wales No ), and Partnership Home Loans Limited (registered in England and Wales No ). Partnership Life Assurance Company Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Partnership Home Loans Limited is authorised and regulated by the Financial Conduct Authority. The registered office for both companies is Heron Tower, 5 th Floor, 110 Bishopsgate, London EC2N 4AY No liability or responsibility is accepted by Partnership for the use or otherwise of the statements in this literature in any individual situations regarding the giving of advice. The financial Adviser remains solely responsible for ensuring the advice provided is appropriate and meets all legal and regulatory requirements. Tax may be subject to change in the future and depends on individual circumstances.