Advising on DB Schemes at Retirement

Question 1

Additional info required regarding pension income…

Answer 1

what level of indexation/inflation protection is available

What guarantee period is available

What spouse pension is available with the scheme?

Question 2

Info required regarding the clients

Answer 2

• ATR
• Family longevity
• Any planned capex
• Requiirement for guarantees or flexibility
• pattern of income
• Survivors income required?
• importance of death benefits
• Any expected inheritances

Question 3

Factors to consider when assessing Capacity for Loss

Answer 3

• Children are financially independent
• They have no mortgage
• Have liquid savings and investments?
• Have income requirement of £35k which will not be met from their joint income
• Loss of Mrs pension income on her death will have a greater effect on Mr than the death of Mr would have on her

Question 4

5 Benefits of transferring DB

Answer 4

• Can vary the income being withdrawal
• Potential for investment growth
• PCLS will likely be greater
• Death benefits will likely be higher and more flexible
• Death benefits will be tax free if death is before 75

Question 5

5 Drawbacks of transferring DB

Answer 5

• Loss of guaranteed pension / exposure to investment risk
• Loss of escalation in payment / indflation risk
• Longevity risk
• Sequencing risk
• Costs / charges / complexity

Question 6

How to stress test a Cash Flow model as part of annual review

Answer 6

• Future returns lower than expected
• need to increase income more than expected
• Sudden loss of assets / stock market crash
• Large unplanned capital withdrawal
• Inflation greater than anticipated
• Live longer than expected