Pension income annuities, third way annuities and pension fund withdrawal

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Pension income - annuities, third way annuities
and pension fund withdrawal

• Chair Kim Lerche-ThomsenCEO and Co. Founder,
  Living Time
• Billy BurrowsWilliam Burrows Annuities

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Pension income - annuities, third way annuities
and pension fund withdrawal
Billy Burrows William Burrows Annuities PFS
Conference 2008
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Agenda

• Advice process
• Key issues / annuity trends
• Overview of options
• The case for annuities / drawdown
• Financial objectives
• Retirement planning

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Advice Process
Discuss options and explain risks
Review circumstances
Initial contact
Make Recommendations
Terms of business Explain process Overview of
options
Fact Find Income requirements Attitude to risk
Compare contrast options Explain risks
Present report Annuity / DD Quotes Reasons Why
letter

• Overview of options
• Make aware of key issues
• Explain the process

• Income requirements
• Attitude to risks
• Flexibility Control
• Death benefits

• Advantages of annuities
• The case for flexibility
• Risks of Drawdown

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Annuity Trends
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Annuity Trends
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Key Issues for individuals

• Concern for lifetime income
• A strong desire to preserve ones standard of
  living over the long term
• A desire for professional asset management
• The need of many older individuals for simplicity
  and structure in their financial affairs
• Coming to grips with their own mortality and
  expressing concern about the desire or ability of
  a surviving spouse to manage money in the event
  of their own death

Taken from, Annuitisation it shouldnt be a
secret,
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Key Issues (continued)

• Concerned about outliving their financial assets.
• Benefits of annuitisation are not sufficiently
  emphasised by annuity wholesalers
• Desire for flexibility / control and death
  benefit
• The mistaken belief that the same goals can be
  achieved by a systematic withdrawal from a mutual
  fund

Taken from Annuitisation it shouldnt be a
secret,National Association of Variable
Annuities
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Overview of Options
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THE AT RETIREMENT MARKET
Income Drawdown 450 million
Unit Linked
High
Middle Market
Customer Investment Risk
Fixed Annuities 1.05 billion
With-Profits Annuities 56 million
Low
Customer Mortality Risk
Low
High
Source - ABI, data for the year ending 2007
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Rationale for W-P Annuities

• People are not only living longer, they also have
  high financial expectations.
• Average life expectancy for a 65 yr man is 20 yrs
• If annuities are a long term investment they
  should be invested in suitable assets
• Provide a good hedge against inflation
• Equities may outperform gilts in long term
• However investors must understand the risks and
  have other sources of income

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Rationale for Fixed Term

• Investors want a high level of secure income but
  dont want to commit to lifetime annuity
• Flexibility to change options at end of term
• Concerned that circumstances / health might
  change
• Dont want to take unnecessary risks

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Rationale for Guaranteed DD

• Long term income products should be invested in
  real assets
• Provide a good hedge against inflation
• Equities should outperform gilts in long term
• Investors want annuity style income but with the
  flexibility of Drawdown
• Income is important
• Investors do not want to take unnecessary risks
  with retirement income
• Priority is protect against risk of fall in
  equity prices

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Guaranteed DD Products
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• Advantages
• Guaranteed income - longevity insurance without
  requiring annuitisation.
• Flexibility investment control and lump sum
  death benefit (less 35 tax)
• Allows equity investment with lock ins

• Disadvantages
• Additional costs
• Investors may be buying something they don't
  really need at an extra cost
• Age 75 !!!

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Retirement Objectives
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Risk Management

• Most investors faced with number of risks
• Risk of dying early / risk of living too long
• Risk of not having enough income / inflation
• Investment risk
• Risk that their circumstances will change
• No one policy will hedge against all risks
• Annuity no flexibility no lump sum on death
• Drawdown flexible but with investment risk

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Meeting the Objectives
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Retirement Planning Key Issues

• Income is important
• Everybody needs it some more than others
• Not black and white
• Not simply a choice of annuity or drawdown
• Middle way?
• Attitude to risk may change with age
• Less risk as clients get older
• Many people transition into retirement
• Phased retirement
• Combination of products

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Important Information

• This presentation is for UK financial
  professionals only. It is not intended for
  onward transmission to private customers and
  should not be relied on by any other person.
• This presentation represents William Burrows
  Annuities interpretation of current legislation
  as at the date of publication - these may change
  with specific regard to pension options in the
  future.
• William Burrows Annuities www.williamburrows.co
  m
• William Burrows Annuities, a trading name of MPL
  Wealth Management Ltd, authorised and regulated
  by the Financial Services Authority (FSA). 45
  Doughty Street London WC1N 2LR. Tel [phone]
  4711.

Feb 2008
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