1. Maximising the benefits and mitigating the risks of Drawdown… Key considerations for the Drawdown Review Process For financial intermediary use only. Not approved for use with customers. Jan Holt, Head of Business Development Team @retirementwhizz @janholt

2. Today we will discuss The purpose of Drawdown reviews, HMRC and FCA requirements How to calculate relevant and personalised critical yields Why might a conversion to an annuity be considered? What might an appropriate process for Drawdown reviews look like? Conclusions

3. Why is an annuity provider talking about Drawdown Review?

4. Risk looks different when you take an income 30 Years of the FTSE – 1984-2014 Volatility

5. 14 years of volatility – completely beyond your control You just have to ride it out! Capacity for loss may see you through this, control may be the key requirement.

6. The purpose of Drawdown reviews

7. FCA rules for Drawdown reviews COBS 9.3.3 Outcomes = personal recommendations Regulatory updates 55 and 67

8. Best practice for Drawdown reviews – COBS 9.3.3 “When a firm is making a personal recommendation to a retail client about income withdrawals or purchase of short-term annuities, it should consider all the relevant circumstances including: (1) the client's investment objectives, need for tax-free cash and state of health; (2) current and future income requirements, existing pension assets and the relative importance of the plan, given the client's financial circumstances; (3) the client's attitude to risk, ensuring that any discrepancy is clearly explained between his attitude to an income withdrawal or purchase of a short-term annuity and other investments. COBS 9.3.3

9. A key question Based on the requirements of COBS 9.3.3. is anything missing from your Drawdown review process?

10. Is anything missing from your Drawdown review process? “A process which doesn’t include both health questions and the practical use of the answers to those questions is likely to result in more clients remaining in drawdown, possibly to their detriment”

11. What makes an inadequate Drawdown review? Not considering an annuity? Failure to ask health questions? Failure to include enhanced rates in Critical Yield? Client

12. Critical Yields in the Drawdown process Income requirements Construct investment portfolio Assess risk profile Critical Yield Enhanced annuity rate?

13. Critical Yield A – ask yourself this key question Is this the correct annuity type and shape for my client?

14. Three steps to a personalised Critical Yield Underwrite IncomeShape Personal Critical Yield

15. A personalised Critical Yield in practice Underwrite 50% Spouse Pension and 5 year Guarantee Period Income Qualifies for Moderate Enhanced Rate Critical Yield Type A = 6.34% £100,000 Source: Avelo Exchange & Just Retirement Limited – 4.10.13. Based on an individual aged 65, with a £100k fund, no guarantee, no escalation, no value protection, based on RH2 7RT postcode. An annual management charge of 2% has been assumed when calculating critical yields. Shape £7,320, sustainable until he annuitises at age 75

16. Impact on Critical Yield calculation Personalised Critical Yield Quoted CY from Capped DD Quotation 6.34% Step 3 Income 9.93% Step 2 Shape 6.68% Step 1 Underwrite 7.45% 0.00% 5.00%10.00% Source: Avelo Exchange & Just Retirement Limited 4.10.13. Based on an individual aged 65, with a £100k fund, monthly in arrears, no escalation, no value protection, 50% spouses pension, 5 year guarantee period, based on RH2 7RT postcode. An annual management charge of 2% has been assumed when calculating critical yields.

17. The consequences of an inadequate Drawdown review Client complaints – effect on reputation and costs? FOS review? FCA review and or censure? A compliance gap? Overall impact on PI? Adviser

18. Why might a conversion to an annuity be considered? Health LTC Death of spouse Assets depleted Mortality drag Now fully retired Concerns re performance required ATR changed G’teed income now important Legislation, GAD etc

19. Is phased conversion to an annuity something to be considered? Drawdown becomes progressively less suitable as we age. Annual mortality subsidy based on age of buying annuity Additional asset growth required to counteract the drag effect against increasing age

20. Annual mortality subsidy based on age of buying annuity Exit strategies are important because of mortality drag When should annuitisation start? Financial sense of annuitising increases Additional asset growth required to counteract the drag effect against increasing age

21. An appropriate process – meeting the needs of COBs 9.3.3 Frequent reviews Charge an explicit facilitated fee Conduct full fact find Check Drawdown ATR Capacity for loss State of health – self and dependants Change in circumstances Relevant Critical Yields Issue relevant annuity quotes Discuss options with client Make recommendation

22. Conclusions Talk to us! Annuities: Still relevant and valuable Better Client Outcome How to Reduce Ask the right Questions A useful Benchmark Regulatory Risk Support

23. Important information It is our intention that the information contained within this presentation is accurate. We have taken all reasonable steps to ensure that it is up-to-date and where relevant, reflects the current views of our experts. However, we do not accept any liability for errors or omissions in the information supplied and if you require clarification on anything, our recommendation is that you contact us at the address below for verification, or call 0845 302 2287. Our registered address: Just Retirement Limited Vale House, Roebuck Close, Bancroft Road, Reigate, Surrey RH2 7RU. Regulatory information: Just Retirement Limited (Registered in England Number 05017193). Registered Office: Vale House, Roebuck Close, Bancroft Road, Reigate Surrey, RH2 7RU. Just Retirement Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. www.justadviser.com Calculators, literature library, marketing material Follow the updates on us on twitter @retirementwhizz @janholt