Building for the future Investor day 26 November 2014
Agenda 1 1 Introduction Steve Groves | CEO p2 2 Business model update Steve Groves p3 Richard Willets | Director of 3 Changes in the longevity landscape p10 Longevity 4 Distribution Andrew Megson | MD Retirement p31 5 Defined benefit proposition Costas Yiasoumi | Director of DB p39 6 International Mark Dearsley | MD International p51 7 Current trading, costs and balance sheet David Richardson | CFO p63 8 Summary and Q&A Steve Groves p72
2 Introduction Steve Groves
3 Business model update Steve Groves
A period of significant regulatory change 4 C hancellor announces “nobody Pensions freedom Death benefit tax TPAS/CAB named as will have to buy an annuity” consultation period changes announced providers of ends and government and then clarified pensions guidance Guidance guarantee announced response published March July September October • Immediate and significant • Government response • Announcement that • Government reduction in individual annuity provided further pension savings & announces Citizens sales details on changes but drawdown contracts Advice Bureau will many areas required to be passed on tax provide face to face • Paralysis of distribution networks further consultation free <75 / at marginal guidance, and • Initial commitment to all retirees rate >75 telephone guidance • Industry, advisers and having access to free impartial will be provided by • Clarification followed customers in limbo face to face ‘advice’ quickly the Pensions awaiting for clarity on days later that revised down to ‘guidance’ Advisory Service tax and regulatory annuity lump sum • April 2015 deadline for guidance changes death benefits would set without consideration of be treated equally practicalities of implementing • Advisers paused access for 320,000 retirees p.a. again to digest latest changes Longevity Current trading, Business model Defined benefit Summary and trends and Distribution International costs & balance update proposition Q&A challenges sheet
Uncertainty remains in key areas 5 Announced changes Uncertainty remains in key areas • Up to 25% taken as tax-free • How retirees will react to pensions freedoms; how quickly and how much lump sum, remainder can be of pension savings held by those who have deferred their retirement used to buy annuity/other Customer income decision will be used to buy annuities/other products products or withdrawn in one or • How many retirees will choose to transfer out of DB schemes. behaviour several lump sum(s) and taxed Government estimates suggest 10-20%; subsequent Hymans Robertson at marginal rate report indicated transfers may be as high as 30-40% • Upon death; <75; pension fund passed on tax free / >75; tax payable at marginal rate • How many retirees will choose to use guidance service, how effective it is • DB to DC transfers allowed, and what it will recommend Guidance compulsory guidance for pots • How FCA views on suitability of drawdown arrangements for <£50k pots above £30k will be reflected in guidance • Free and impartial face to face guidance to be offered to all retirees at the point of retirement • What the new rules will permit in terms of product development Products/ • FCA believes income drawdown • How the industry will deal with the practicalities of proposals for pensions industry is “unlikely to be suitable” for to be accessed regularly in the same way as a bank account pension pots under £50,000 Longevity Current trading, Business model Defined benefit Summary and trends and Distribution International costs & balance update proposition Q&A challenges sheet
Partnership past, present and future 6 Pre Budget strengths still valid Immediate action to adapt Post Budget opportunity • Unique medical and mortality • Action taken to reduce cost base • Diversification of business model dataset collected over 19 years of founded on IP: • Work started to develop new writing individually underwritten products for retail market, annuities including focus groups to • New longevity protection • Globally applicable intellectual understand customer needs and products for UK retail market property appetite • Cash generative products: • Accelerated development of • New customers in defined individual annuities, defined Defined Benefit proposition benefit space benefit de-risking, care and • Lobbying for effectiveness of protection Guidance Guarantee • Innovative product development • New international market • Strengthened distribution expertise arrangements by connecting with • Ability to respond quickly to CAB/TPAS changing markets and regulation • Ad campaigns with advisors to • Strong distribution networks highlight importance of guaranteed income in retirement planning Longevity Current trading, Business model Defined benefit Summary and trends and Distribution International costs & balance update proposition Q&A challenges sheet
Profitable growth opportunities for diversified business 7 • Structural drivers of at-retirement market intact • 96%/£3.3trn of pension assets in DC schemes by 2030 vs. UK 31%/£0.4trn in 2011 individual • 18.3m over 65s by 2041 vs.11m in 2013 market • Guaranteed income for life still valued by 64% of retirees • New products made possible by regulation changes, Partnership’s IP and product development expertise Profitable • £180bn SPE/ 5000 schemes in core <£100m schemes market growth • Defined Further £1.6trn in larger schemes typically targeted by traditional opportunities benefit bulk writers de-risking • Growth in medical underwriting is accelerating founded on • Employee Benefit Consultants recognise value to trustees of unique IP Partnership proposition • c.300,000 new self-funding entrants into US care p.a . cannot afford an extended period in care but have sufficient assets to buy a product which would fund their income shortfall US care • Demographics support target market growth , with over 85s forecast to more than double by 2040 • Limited competition /alternative products available • IP tested and results indicate validity for use in US Longevity Longevity Current trading, Current trading, Business model Business model Defined benefit Defined benefit Summary and Summary and trends and trends and Distribution Distribution International International costs & balance costs & balance update update proposition proposition Q&A Q&A challenges challenges sheet sheet
IP led business model 8 1 Unique IP based on mortality dataset 1 Years of data collection 19 years No of customers 108,000+ at FY13 Total no of rating factors 120 million + collected Experienced mortality rate in 210-230 deaths 5 Risk per month 2013 Management 2 Annuitant mortality since 12,000 deaths 1995 Questions asked per life 250 3 % of applications which 90% include medical conditions (Remainder subject to covered by underwriting individual assessment) tables 4 MOs who can assess and 4 Diversified Investment Management No of Medical Officers give guidance on more complex or unusual cases Longevity Current trading, Business model Defined benefit Summary and trends and Distribution International costs & balance update proposition Q&A challenges 8 sheet
IP enables product development 9 UK individual market Track record of innovation 1 Individual annuity market expected to move • ■ Enhanced choice annuity launched within 8 increasingly towards individually weeks of 2014 Budget underwritten products, playing to New ■ Smoker and Lifestyle annuities launched in 2007 Partnership’s IP strengths and 2008 Products Securing guaranteed income for clients still • ■ Equity release mortgages which leverage likely to be a priority for IFAs; products Proprietary IP offering higher income through medical underwriting attractive to retirees ■ New automated underwriting process minimises need for underwriter referral and enables • Exploring options for partnering with automatic underwriting in approximately 80% of New drawdown providers to offer medically cases Processes underwritten longevity protection as part of ■ Remaining 20% more complex or larger cases a retirement account when new regulations are referred for underwriter review have been implemented ■ Early mover in underwritten defined benefit 2 Defined benefit de-risking pension scheme markets DB proposition has been strengthened and • New ■ US expansion plans underway extended to meet trustee needs Markets ■ Accessing new, untapped and significant pools US Care 3 of demand, have the potential to add meaningfully to sales Care product developed for US • Longevity Current trading, Intellectual Investment Business model Defined benefit Summary and Reinsurance Risk management trends and Distribution International costs & balance Property management update proposition Q&A challenges sheet
10 Changes in the longevity landscape Richard Willets
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