1. New pension rules New opportunities A topical update on sales opportunities for advisers in the “at retirement” market and a recap on pension transfer issues For UK financial advisers only

2. Today’s Agenda  Pension transfers – snog, marry or avoid? –When is a transfer not a transfer? –Who can advise? –Case studies  Shifting sands – challenges and opportunities –Age 75 issues –State Pension changes  How LV= can help  Questions and feedback

3. So what’s a pension transfer?

4. What is a pension transfer?  An individual who decides to transfer deferred benefits from: a)An occupational pension scheme; b)An individual pension contract providing fixed or guaranteed benefits that replace similar benefits under a defined benefits pension scheme; or c)(in the cancellation rules (COBS 15)) a stakeholder pension scheme or personal pension scheme; to: a)A stakeholder pension scheme; b)A personal pension scheme; or c)A deferred annuity policy where the eventual benefits depend on investment performance in the period up to the intended retirement date FSA factsheet 06/09

5. Pension transfers – who can do what?  Key term is transfer of “deferred benefits” “Benefits are deferred if they are not continuing to accrue and the benefits are not being taken” “If an individual is transferring benefits for the purpose of crystallising the benefits these will not be considered deferred benefits” FSA factsheet 06/09

6. Who can advise on pension transfers?  Pension specialists –Generally G60/AF3  Need to apply to FSA for “pension transfers permission”  Need to consider P.I. insurer permits such activity

7. What if it’s not subject to the pension transfer rules?  You can advise without being a Pension Transfer Specialist –So transfers “at retirement” from money purchase or final salary pension schemes where client intends to take benefits are not “transfers” –What does this mean to you and your clients?

8. Lower the charges ………….  Many existing plans still have: –Monthly plan fees even on paid up plans –Bid/offer spreads on ongoing contributions –Low allocation rates –High annual management charges –Low bonus rates/poor fund performance –Inappropriate equity content for client needs

9. Lower the charges and get paid  Most modern plans: –Have risk rated fund options –Clear charging structures –Cost effective wrapper charges –Can pay remuneration for the ongoing advice –Offer drawdown option –Offer wide range of investment options

10. Guaranteed annuity rates?  Is it always best to leave clients in existing pension arrangements where these are available?  What if: –the client wants to do drawdown? –the “rate” isn’t particularly attractive? –It’s only available on one specific date? –It’s only available on a single life basis? –It’s only available on an annually in arrears basis?

11. Defined benefit pension transfers  Final salary schemes are closing to both new and existing members  Risk of future benefits being reduced  Risks to already accumulated benefits –Funding issues and the Pension Protection Fund  Changes to indexation approach  Complex area for advice but …… is this an “AVOID” area? Or do you ask one question?

12. Scheme Financial Security  Many private sector DB schemes are underfunded –Using a scheme buy out basis  Impact on transfer values?  Pension Protection Fund issues –Higher earners only protects benefits up to 90% of £33,054 for retirement at age 65 Only increases post 5/4/97 benefits in line with lesser of 2.5%/RPI(CPI)

13. Client scenarios – what do you think? Brian has been a member of his final salary pension scheme for 30 years, but has recently lost his wife. His health has recently deteriorated and he is around 18 months from normal retirement age. Q. What might he consider and why? A.He may qualify for an enhanced annuity – now or in the future. B.If he remarries his future wife may not benefit from a dependant’s pension. C.The transfer value from his final salary scheme may provide him with a higher single life pension. D.He may want some breathing space.

14. Client scenarios – what do you think? Richard is a senior captain with a well-known airline. He has been a member of the company’s final salary pension scheme since joining the firm over 30 years ago. He is a few years from retirement and he has secured a yearly pension of over £70,000. He is worried about the pension scheme funding position. He has opted out of the pension scheme, and wants your advice about investing the £1m plus transfer value. Q. Why do you think he has done this? What do you say and can you help? A.Pension Protection Fund cap is less than half his deferred pension. B.He cannot opt back in as part of the deal was to take a transfer value. C.He wants to go into pension drawdown. D.You need to be a pensions transfer specialist. E.Client did not seek advice about the opt out.

15. Client scenarios – what do you think? Fiona divorced some years ago and has her 24 year old son living with her. She is worried about him. Although he is not deemed to be a financial dependant, the truth is he is. Her main pension provision was a non-contributory final salary pension scheme she left a few years. She has decided to transfer her £150,000 transfer value to a personal pension. Q.Why might she have decided to do this? A.Death in deferment was a return of personal contributions (with interest) B.Her son is not a financial dependant (in the pension scheme sense) C.Her main concern was that in the event of her death, her son would have some money available. D.Overriding motive for transfer was “death in deferment” scheme rules

16. Client scenarios – what do you think? Eric and Erica are both head teachers and members of the Teachers Superannuation Scheme (TSS). Both are approaching retirement and have asked for some general advice. They each have secured a pension in the region of £40,000 a year. Both would like to consider alternatives to taking both pensions from the TSS and like the option of being able to access their fund and pass assets to their children. Q.What could you offer as an alternative? A.Firstly, both of them won’t benefit from the dependant’s pension under the TSS. B.They may have sufficient secured income to move into drawdown with one of their transfer values. C.Legal right to a transfer only available with ONE year or more to Normal Retirement Date. D.More options to pass on assets to their children

17. The retirement market Shifting sands in the “at retirement” market Age 75 Abolition of default retirement age LTA reduction Abolition of contracting out State pension changes Flexible drawdown Capped drawdown

18. 6 April 2011  No need to buy an income at age 75  Alternatively secured pensions no longer exist  USP becomes Drawdown from 6 April 2011  Transitional measures for those who reached age 75 on or after 22 June 2010 – Emergency Budget day  Pension tax relief encourages individual responsibility for saving

19. 6 April 2011 - drawdown options compared  Capped drawdown –Similar to current USP –Maximum of 100% GAD –Income taxed at highest marginal rate (as present)  Flexible drawdown –Unlimited drawdown available –Taxed at highest marginal rate Flexible option only available to people who are not likely to fall back on the State

20. 6 April 2011 – Flexible drawdown  Minimum Income Requirement (MIR) –Set at £20,000 a year of secure income –Level lifetime annuities will count –Tested from age 55 onwards –One level of MIR –MIR only tested once – when flexible drawdown is to start

21. 6 April 2011  Capped Drawdown –Pre 75 – 3 yearly reviews –Post 75 – 1 yearly reviews –Maximum income 100% of GAD for both –Client in ASP now – will move to Drawdown and new limits apply from 6 April 2011  Available post 75 –PCLS –Trivial commutation lump sum (25% tax free, remainder at marginal rate of tax) –Value protection lump sum (55% tax charge)

22. 6 April 2011 Lump sum death benefits Pre 75Post 75 Uncrystallised fundsTax free55% tax charge Serious ill-healthTax free55% tax charge Drawdown pension fund55% tax charge

23. Lifetime and annual allowance changes  From April 2011 –All benefits to be tested against the LTA by age 75 (as now) –Annual allowance to be reduced to £50,000 –Carry forward allowed (max 3 years)  Changes to Lifetime allowance –Lifetime allowance to be reduced to £1,500,000 from April 2011 –New “underpinned lifetime allowance” –New “Fixed Protection”  Change to annual allowance calculation for DB schemes –Factor to be increased from 10 to 16 –CPI to offset inflation increases

24. Exemptions 2011/12  Death  Serious (terminal) ill-health  Deferred members – Increases no more than applicable as at 14/10/2010 (or CPI revaluation)  Non relieved member contributions  Contracted out rebates

25. Not Exempt  Benefits crystallised in year of retirement  Redundancy (but carry forward may help)  Early retirement (but carry forward may help)  Members with enhanced protection

26. State Pension  May 2010 new coalition Government proposed: –SPA to increase to age 66 for men and women, being phased in 2018 – 2020 –A “triple guarantee” that State Pensions will increase by the higher of: Earnings Prices Or 2.5% (Lib Dem input) –Government response to the consultation issued 3 November 2010 Propose to equalise SPA of age 65 for women bought forward to November 2018

27. State Pension  Proposal to increase basic State Pension to £140 per week  Abolition of means-testing –Necessary to avoid NEST issues

28. Abolition of default retirement age  Proposal to scrap default retirement age of 65 from October 2011 –Employers no longer able to dismiss staff at 65 –Some jobs likely to be exempt Air traffic control and police for example

29. Indexation issues RPI was 4.3% pa and CPI 2.9% pa in September 2010 … and your pension increases will be calculated using CPI rather than RPI Source: Citywire 22 June 2010 & 13 July 2010

30. Financially strong and stable LV= a compelling choice…  the UK’s largest friendly society  proudly ‘mutual’, with no shareholders eating into profits  looking after members since 1843  11.4% - realistic free asset ratio*  £9.3 billion assets under management  3.8 million members & customers *As at 31/12/09

31. Flexible Transitions Account  ‘Flexible’  ‘Transitions’  ‘Account’  Why Liverpool Victoria?  PPP, USP, PR USP, S32 USP, Phased USP, PRP.  Plus Same day quotes, same day TVAS, transfer chasing, on line servicing and valuations

32.  Complex decisions for clients  More options than ever before – more pitfalls too!  Means-testing, State Pensions and tax relief on pensions?  We can help, with local expertise, risk profiling and risk rated funds  And finally……….. Summary

33. At the end of the day……..its up to individuals but...

34. Thank you for your attention… … any questions ?

35. For UK financial adviser use only. This presentation is based on our understanding as at 17 December 2010 of the proposed changes to legislation set out on in draft legislation and consultation papers, and current legislation applicable in England and Wales and HM Revenue & Customs practice which can change in the future. We cannot accept responsibility for any action arising as a result of the information contained in this presentation. Not to be used after 5 April 2011 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, AFM and ILAG. Authorised and regulated by the Financial Services Authority, register number. 110035. NM Pensions Trustees Limited, (registered in England No. 4299742), act as Trustees and Scheme Administrators. Authorised and regulated by the Financial Services Authority, register number. 463402. Registered address for all companies: County Gates, Bournemouth BH1 2NF. Tel: 01202 292333. 21017737 12/10