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Employee Pension Options – What Is the Employer's Role

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Employee Pension Options – What Is the Employer's Role Employee pension options – what is the employer’s role? 12 September, 2019 With you today Richard Birkin Mark Powley Jonathan Summerlin Head of DC Pensions Head of DC Head of Defined Benefit & Wider Savings Investment Advisory Member Options T: +44 (0) 7779 280720 T: +44 (0)7795 644573 T: +44 (0)7967 308112 E: [email protected] E: [email protected] E: [email protected] © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 Document Classification: KPMG Public Agenda DC/workplace savings landscape Changes in DC default strategies In-retirement investment pathways Retirement activity and support DB transfer options and activity © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 Document Classification: KPMG Public DC/workplace savings landscape DC workplace savings landscape DC delivery vehicles DC providers 100% To provide some Insurance Companies context, Automatic 80% — Aegon — Aviva Enrolment has — Standard Life — Legal & General increased the number 60% — Fidelity — Scottish Widows of members of DC schemes to around 40% Employee Ben Cons (Master Trust) 15 million. Almost 20% 13.5 million of these — Aon — XPS are in DC 0% — Capita — Willis Towers Master Trusts. — Mercer Watson 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Trust Contract Others — Smart Pension — Nest 2016 2017 — The People’s — Salvus Master Trust 5% 10% Pension — SEI Own Trust 46% 47% Note: The above does not represent an exhaustive list of Source: The Pensions Regulator Source: Pensions and Lifetime Savings Association (“PLSA”) providers in the market scheme return data 2018/19 © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 Document Classification: KPMG Public Master Trust Authorisation 44 Some of those already authorised by the Regulator LifeSight Crystal Bluesky Aviva Legal & General Mercer Standard Life 22 Fidelity Capita Aon Smart Pensions 16 The People’s Pension SEI National Pension Trust Authorised Applied and Exiting the awaiting market response Note: The above does not represent an exhaustive list of providers that have applied for authorisation © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 Document Classification: KPMG Public Integrated workplace savings General investment account Debt General investment Employer consolidation account contribution Employee contribution Invest in DC General investment account account © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 Document Classification: KPMG Public Changes in DC default strategies Realised risk and return, Growth phase return performance, Providers’ 1 year to 30 June 2019 30 June 2019 investment 16% 12% Fidelity Aon capabilities – L&G 8% Mercer LifeSight Return Return Aviva Growth 4% Aegon phase 0% 0% 2% 4% 6% 8% 10% 12% 14% 16% Annual volatility Asset allocation 31 years from retirement 100% 50% 0% LifeSight Aon Fidelity Aviva Aegon Mercer Standard NEST L&G Life Passive Developed Equity Equities – Global SmallCap Emerging Markets Equity Infrastructure Equity Private Equity Property Commodities DGF High Yield Debt Emerging Markets Debt Absolute Return Bonds Corporate bonds Government Bonds Cash Source: KPMG and the providers © 2019 KPMG LLP, ©a 2019UK limited KPMG liability LLP, apartnership UK limited andliability a member partnership firm ofand the a KPMGmember network firm of ofthe independent KPMG network member of independent firms affiliated member with KPMGfirms affiliated International with KPMGCooperative (“KPMG International”),International a Swiss entity. Cooperative All rights (“KPMG reserved. International”), a Swiss entity. All rights reserved. 9 © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification:Document KPMGClassification: Public KPMG Public Realised risk and return, Retirement phase performance, Providers’ 1 year to 30 June 2019 30 June 2019 investment 16% 12% capabilities – Aon 8% Mercer L&G Return Fidelity LifeSight Return Retirement 4% Aegon Aviva phase 0% 0% 5% 10% Annual volatility Asset allocation 1 year from retirement 100% 50% 0% L&G Mercer Aon Aegon Aviva Standard LifeSight Fidelity NEST Life Passive Developed Equity Equities – Global SmallCap Emerging Markets Equity Infrastructure Equity Private Equity Property Commodities DGF High Yield Debt Emerging Markets Debt Absolute Return Bonds Corporate bonds Government Bonds Cash Source: KPMG and the providers © 2019 KPMG LLP, ©a 2019UK limited KPMG liability LLP, apartnership UK limited andliability a member partnership firm ofand the a KPMGmember network firm of ofthe independent KPMG network member of independent firms affiliated member with KPMGfirms affiliated International with KPMGCooperative (“KPMG International”),International a Swiss entity. Cooperative All rights (“KPMG reserved. International”), a Swiss entity. All rights reserved. 10 © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification:Document KPMGClassification: Public KPMG Public Investment pathways Default investment pathways Introduction from 1 August 2020 of default investment pathways for drawdown products (100,000 retirees a year) Four options to be provided to cater for different broad retirement objectives Support with investment decision for those moving on non-advised basis Full cash investment has to be an active choice Will not provide optimal outcome for everyone, but aim to avoid retirees from the worst outcomes (running out of money in retirement) © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12 Document Classification: KPMG Public Default investment pathways – The options £ £ £ £ £ £ £ £ £ £ £ Leave money Buy an annuity Take money as Cash in all the pot where it is within 5 years long-term income within 5 years within next 5 years © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 13 Document Classification: KPMG Public Retirement activity and support Market retirement data Retirement income decision Retirement income decision by pot size (Oct 15-Mar 18) (Oct 15-Mar 18) 60% 53% 100% 7% 3% 15% 4% 5% 29% 50% 80% 4% 40% 4% 31% 60% 58% 86% 69% 30% 58% 84% 40% 46% 20% 13% 3% 20% 4% 10% 3% 2% 7% 15% 21% 23% 20% 9% 0% 0% 5% Annuities Drawdown UFPLS Full cash Less than £10,000- £30,000- £50,000- £100,000- £250,000 withdrawals £10,000 £29,000 £49,000 £99,000 £249,000 and above Annuities Drawdown UFPLS Full cash withdrawals Source: FCA Source: FCA The drawdown and UFPLS options have also increased in Since pension flexibility was introduced, there has been a popularity since pension flexibility was introduced, with marked reduction in the number of annuities purchased, with Drawdown being the route most members take for pot sizes the majority of members opting for full cash withdrawals across over £50,000. all age ranges. © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15 © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Public Workplace at-retirement market ‘Retail’ Standard Life 1825 Hargreaves Royal London Lansdown Wealth Wizards Fidelity Wealth at work International LVE Legal & HUB Financial Product LifeSight Advice General Solutions Origen Financial Aegon Services Scottish Widows AVIVA ‘Institutional’ © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 16 Document Classification: KPMG Public At-retirement risks to trustees and sponsor Risks of doing nothing Risks of doing something — Members take “Path of least resistance” — Increased costs and cash out — Implied recommendation — Poor member outcomes (e.g. buying poor — Reputational link to provider(s)
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