Slide 1: Optimizing Salaries in Retirement
Optimizing Salaries in Retirement The HOW
Slide 2: Trustee Endorsed Annuity Strategy
Trustee Endorsed Annuity Strategy "annuity strategy means a strategy, as determined by a board, setting out the manner in which a member’s retirement savings may be applied, with the member’s consent, to provide an annuity or annuities by the fund or to purchase an annuity on behalf of the member fr
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Slide 4: One-size does not fit all
One-size does not fit all
Slide 5: 3 Step Process for Travel Agents
3 Step Process for Travel Agents • Planning • Administration • Solution
Slide 6: 3 Step Process for Trustees
3 Step Process for Trustees • Planning - Counselling/Support/Advice • Administration - Smooth transition • Solution - Product that meets needs
Slide 7: Planning
Planning Status quo NOT optimal! Need to fill the gap Written Communication
Slide 8: Retirement Benefits Counselling
Retirement Benefits Counselling • Opportunity to engage the underserved • Deliver on both the letter and spirit • Scope for creativity • Takes investment • Takes expertise
Slide 9: Retirement Optimisation Services
Retirement Optimisation Services • Counsellors • Call-centre • Integrated on-line platform – RetireMate • Step-wise guided process • Customisable • Cost-effective • Conflict-free
Slide 10: Administration
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Slide 11: Administration
Administration • Facilitates Counselling • Data Requirements • Smart Triggers • Seamless Transition • In-fund solutions
Slide 12: Solution
Solution Range of options can be over-whelming • To Trustees • To Consultants • To Members
Slide 13: Most NB Feature of a Trustee Endorsed Annuity Strategy
Most NB Feature of a Trustee Endorsed Annuity Strategy 70.0% • Income for life 60.0% • Increasing with inflation 50.0% • To keep up with living costs 40.0% 30.0% 20.0% 10.0% • With appropriate benefits to 0.0% dependants on death? 2015 2016 2017 2018 Longevity protection (income for life) Maintain t
Slide 14: In an Ideal World … 1st Class Travel
In an Ideal World … 1st Class Travel • Inflation-Linked Annuity • Real Growth • Longevity Protection … Expensive … Locked In FOREVER
Slide 15: Trade-Offs
Trade-Offs • Do the best within budget • Costs v Benefits v Risks • Find a balance • Trade-Off • Optimise Experience … Optimise Salary
Slide 16: Risks
Risks market longevity replacement annuity vehicle affordability risk risk risk level fixed escalation traditional with profit inflation linked index linked living annuity lower risk higher risk
Slide 17: What have Funds done to Date?
What have Funds done to Date? • Combinations - 28% • Living Annuity - 25% • With Profit Annuity - 19% • Guaranteed Escalation Annuity - 9% • Inflation Linked Annuity - 9% • Hybrid/Composite Annuity - 0%
Slide 18: What is Optimal?
What is Optimal? • High Usage • Better Financial Outcomes Key Levers • Affordability • Flexibility • Relevance
Slide 19: Optimal Solution … Living Annuity
Optimal Solution … Living Annuity Flexibility • Income • Investments • Optionality Financial Outcomes • Sufficient income at inception • Opportunity for sustainable income over time
Slide 20: How to Optimise Salary in Retirement
How to Optimise Salary in Retirement Living Annuity • Investment Strategy • Drawdown Rates • Fees
Slide 21: Investment Strategy
Investment Strategy • Pensioners invest too conservatively • Erosion of income sustainability • Starting base typically too low • Real assets required
Slide 22: Investment Risks
Investment Risks Timing/luck determines outcome (sequencing risk) • Retirement followed by a crash • Starting base affected
Slide 23: Investment Risks
Investment Risks Drawdown rate linked to risk appetite • Too high – higher returns required • Afford less risk
Slide 24: Investment Solution – Combination of Protection and Aggression
Investment Solution – Combination of Protection and Aggression Protection Portfolio • 5 x Drawdown rate Aggressive Portfolio • Growth
Slide 25: Investment Solution – Combination of Protection and Aggression
Investment Solution – Combination of Protection and Aggression Protection Portfolio • Real returns • Short term downside protection • Initial income drawn from Protection Portfolio • Mitigate Sequencing Risk post retirement
Slide 26: Investment Solution – Combination of Protection and Aggression
Investment Solution – Combination of Protection and Aggression Aggressive Portfolio • Long term Real returns • Growth over the long term for income sustainability • Short term volatility not locked in
Slide 27: Investment Solution – Combination of Protection and Aggression
Investment Solution – Combination of Protection and Aggression • Retirement lump sum = R2.4m • Pensioner needs salary of R10k pm (i.e. R120,000 p.a.) • Drawdown rate = R120k / R2.4m = 5% • Allocation to Protection Portfolio = 5 x 5% = 25% of R2.4m = R600k • Allocation to Aggressive Portfolio = R2.4m
Slide 28: Protection Portfolio
Protection Portfolio Net bonuses to 31 March 2018 (annualised) Stable Bonus Portfolio Inflation* 15% • Stable Bonus 12.1% 10.7% 12% • Smoothed returns 8.0% 8.8% • Full downside protection 9% 5.8% 4.4% 5.9% 5.5% 6% 3% 0% 1 year 3 years 5 years 10 years REAL RETURNS 1 year 3 years 5 years 10 years Sta
Slide 29: Protection Portfolio
Protection Portfolio 5.40 4.90 • Stable Bonus 4.40 • Smoothed returns 3.90 3.40 • Full downside protection 2.90 2.40 1.90 1.40 0.90 Stable Bonus Portfolio Global LMW median
Slide 30: Aggressive Portfolio
Aggressive Portfolio • Single manager – Active • Multi-manager – Active • Passive Goal – Maximise long term returns
Slide 31: Institutional Living Annuity
Institutional Living Annuity Age Males Females 50 4.0% 3.5% • Trustee selected spectrum of Drawdown rates 55 4.5% 4.0% • Trustee determined range of investment choices • Trustee negotiated administration and investment fees 60 5.0% 4.5% • Advice recommended 65 5.5% 5.0% • Retirement Benefits Counsel
Slide 32: Institutional Living Annuity
Institutional Living Annuity Living annuity income drawdown 10 000 • Not a silver bullet … but … relevant to many retirees • Complementary to Retail structures Monthly income (R) • Lower fees but with less choice • Serves the underserved 5 000 • Can combine with Guaranteed Annuity 0 1 6 11 16 21 26
Slide 33: Optimising Salaries in Retirement
Optimising Salaries in Retirement Planning • Omni-channel • Engage as many members as possible Administration • Smart and Stable • In-fund capability Solution • Flexible • Mitigate sequence risk • Deliver long term income sustainability