Private 3rd Party Pension Sponsorship (3PPS)
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This document discusses introducing private third-party pension sponsorship to help address issues with the UK pension system. It notes widening savings gaps and lost consumer confidence in pensions. It analyzes past schemes and concludes more innovation is needed rather than repeating past approaches. A potential third-party pension sponsorship model is outlined that could improve outcomes by providing extra funding support, focusing on consumers, and offering financial education alongside retirement solutions. Benefits could include reducing the savings gap and shifting liability away from the public sector.
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Private 3rd Party Pension Sponsorship (3PPS)
- 1. INTRODUCING PRIVATE 3rd PARTY PENSION SPONSORSHIP PLEASE MIND THE GAP For Professional Advisors, Employers & Trustees Only
- 2. IMPORTANT QUESTIONS • Excluding the reliance on 2nd generation wealth, how does the pension industry plan to solve the widening savings gap? • How will the industry re-engage consumers who have lost all faith and trust in pensions? • Has there been any real benefit from pension ‘improvements’ (switches) made in the last decade? • Were these ‘improvements’ necessary and did any valuable practical advice & education occur?
- 3. PAST vs FUTURE • Final Salary schemes are closing • DC Trust based schemes restrictive (admin) • GPP’s impacted by impending RDR changes • Is NEST really the answer or simply destined to deliver yet more of the same? • Is NEST a complete waste of £1bn?
- 4. INEVITABLE CONCLUSION • In reality, successes are too few to identify • Consumer confidence at an all time low • Trust has to be rebuilt • Consumer must be put first • Innovation is essential; not more of the same • Focus on the real enemy – ‘cost of delay’
- 5. KEY PENSION ANALYSIS • Average Employer contribution 5.5% • Average Employee contribution 3% • Average term to NRD 22.8yrs • Average pension fund value (1) £26,000 • Average pension fund value (2) £55,000 • Average scheme turnover 2-3 years • Default fund cash flow 85% to 100% (1) All pension plans, any size (2) Pension plans £1,500 and above Source AEGON DC Group Pension Data
- 6. INCOME SHORTFALL ANALYSIS ALL THINGS BEING EQUAL, THE VAST MAJORITY OF PEOPLE WOULD LIKE TO RETIRE WITH 50% OF THEIR PREVIOUS WORKING INCOME ON AVERAGE, WE ASSUME THAT A SHORTFALL OF AROUND £250,000 OF PENSION FUNDING PER CLIENT WILL OCCUR ASSUMING CURRENT TRENDS CONTINUE
- 7. A DECADE OF RESTRUCTURING • Reduce charges • Poor investment performance (default fund) • Poor administration • Lack of technology • Legislation changes • Providers withdrawing from the market COMMON JUSTIFICATIONS FOR PENSION PLAN RESTRUCTURES
- 8. SCHEME DESIGN ANALYSIS TYPICAL “90’s” SCHEME • Initial charges 5% to 40% • 5% bid/offer spread • Loyalty units • Default fund - With Profits • 10 – 20 unit linked funds • AMC’s – 1% to 1.5% p.a. • Early encashment penalties • Effective RIY 1.4% to 3% TYPICAL “00’s” SCHEME • Single priced • No initial charges • No bid offer spread • Default fund – Lifestyle Tracker • Over 100 fund links • AMC’s – 0.35% to 1.5% p.a. • Deferred Member Penalties • Effective RIY 0.35% to 1.5% EARLY LEAVER PERIOD MOST PROFITABLE PERIOD
- 9. THE SAVINGS X FACTOR • But what are the key factors that influence long-term savings success MOST? How much is paid in i.e. Premium The length of investment term i.e. Term Asset allocation i.e. Modern Portfolio Theory Contract charges i.e. AMC THE REAL FOCUS HAS TO BE ON GETTING SUFFICIENT PREMIUMS INVESTED ASAP
- 10. CONFIDENCE CRISIS? MOST COMMON REASONS GIVEN BY EMPLOYEES FOR NOT JOINING A PENSION SCHEME • No spare income • My home is my pension • No access • Benefit too far off • Not worth doing • Too complicated • Don’t trust greedy pension/investment firms
- 11. KEY CONSUMER POINTS • Ideal pension at retirement 50% of income • Limited risk preferred • Target investment returns agreed at outset • Protection if something goes wrong • Fees should not apply if investments fail • Access to savings in an emergency • Investment freedom
- 12. TACKLING THE BIG ISSUES • Pensions on their own will in most cases fail to deliver the ideal income based on DC averages currently operating • Employers cannot afford more • Employees cannot afford more • Society cannot afford more • Only pensions people think pensions are great A revolutionary, innovative approach is required
- 13. 3PPS CORE FOCUS • Extra funding support critical • Consumer focused to win back trust • Has to be more than just a pension involved • Practical advice and education programme • Empower small investors in DC schemes • Long-term view will help to reduce risk • Practical lifestyle solutions are essential
- 14. 3PPS POTENTIAL BENEFITS • Improves financial outcome for savers • Reduce savings gap • Tackles consumer negativity • Provides extra flexibility • Helps with Employer budgets • Shifts liability to private sector • Improves workforce positivity • Provides opportunity for financial education
- 15. 3PPS BASIC STRATEGY RISK
- 16. FOR MORE INFORMATION EMPLOYEE BENEFIT CONSULTANTS / WORKPLACE DC SCHEMES / TRUSTEES Please contact Darren Say, Managing Director 07966 069 829 INVESTMENT GROUPS / NETWORKS / IFAS’S / ACCOUNTANTS Please contact Pierre Coussey, Pension & Investment Strategist 07907 917 133 COMPLIANCE / OPERATIONAL SUPPORT / TECHNICAL Please contact Ian Bullock, Operations Director 07896 252 061 South East Regional Office T: 01279 899 002 E: info@rgpconsulting.co.uk
- 17. This document does not constitute personal advice. Should you have any doubt as to the suitability of an investment for your circumstances you should contact one of our advisors. All information and particulars contained in this presentation are for indicative purposes only. They are provided in good faith and are not intended to form part of any contract at this stage. Calculations and assumptions are provided to the best knowledge of RGP Consulting (UK) Limited but cannot be guaranteed and may be subject to change. No liability will be accepted for any inaccuracies, changes or damages arising out of or in connection with the use of information in this presentation. All information regarding potential returns are examples only and are in no way guaranteed. The value of investments can fall as well as rise and past performance is no guarantee of future performance. No advice is given as to the suitability of purchasing a 3PPS investment solution and we strongly recommend the use of an independent authorised professional advisor who can advise you on finance, pensions and investments. No tax advice is given and it is recommended that investors consult a tax specialist regarding their personal circumstances. Any tax reliefs referred to are those currently applying, but levels and the basis of, as well as reliefs from, taxation are subject to change. Their value depends on the individual circumstances of the investor. Before transferring a pension you should ascertain whether any penalties will apply and carefully consider the overall impact of any investment you make. The materials and information contained herein do not constitute an offer or a solicitation of an offer for the purchase or sale of any securities in RGP Consulting (UK) Limited or any of its affiliates. Although this information was believed to be accurate as of the date prepared by RGP Consulting (UK) Limited or its affiliates, RGP Consulting (UK) Limited and its affiliates disclaim any duty or obligation to update such information. This information is not intended to make any investment representations about RGP Consulting (UK) Limited or its affiliates and should not be viewed as such. No representation or warranty is made by RGP Consulting (UK) Limited about the accuracy, reliability or suitability of the information, material, systems, services or products contained or discussed herein. RGP Consulting (UK) Limited, 5 Phoenix House, Hastingwood Road, Hastingwood, Essex CM17 9JT Registered in England & Wales number 6529747. RGP Consulting (UK) Ltd is an Appointed Representative of Eden Associates, which is authorised and regulated by the Financial Services Authority. Eden Associates’ FSA Register number is 459616. The FSA register can be found at www.fsa.gov.uk/register/. IMPORTANT NOTICE
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- To understand what needs to change, we need to understand the issues We have to establish the hard facts – and ask the tough questions Has legislation actually delivered improvements? Has technology improved things? Have lower charges delivered greater benefits? Have investment decisions worked?
- We have quizzed experts from the biggest investment firms, the largest advisor firms and the biggest insurance companies and the harsh reality is that despite investing millions in technology, lower charges and wider investment choices, everyone agreed that it has been impossible to secure financial freedom with a main stream savings solution. What is there on the horizon? We just saw more of the same. Advisors can not be blamed, they are only as good as the solutions available. The reality is that tougher legislation has created more complex solutions and whilst the standard of advice undoubtedly had to improved, the investment performance in the collective markets has failed. Saving for retirement has become so complicated that even given the best tax incentives (for the time being anyway), few consumers actually choose a pension as the preferred way to save for retirement, why is that? Trust has gone, and the previous government in the end acted purposefully to restrict where 80% of the population would be happy to invest, ignoring the wishes of the saver and protected the interest of the saving community. The Government has to listen to what the consumer wants, not what the savings industry tells them what they want. In our opinion its time to put the consumers wishes first.
- Over the last 5 years, we have invested unrivalled amounts of time into establishing key trends and averages. We have analysed key data from one of the UK’s largest providers of pensions in the UK. Market averages are a good place to start formulating a new strategy to win back the trust of consumers. First we gathered an expert understanding of the averages, then we listened to what consumers want, then we applied legislation considerations and finally after all that, and last of all we tried to find a way of creating a robust commercial business model that ensured all interested parties could benefit. So what were the key points we considered? We know for example that on average, a minimum of £3,025 will be paid by an employer towards a qualifying NOISNEP individual. We know for example that we expect 1 in 4 qualifying people to have existing pension benefits worth £55,000 or more. We know that on average we expect 1 in 2 people earning £55,000+ will either be entitled to a current employer contribution or benefited from one in the past. We know that on average, the unexpired term to NRD is nearly 23 years, And finally, because investment performance has failed to deliver and contributions are far lower than realistically needed, we also expect that many will have to extend their working lives until much later and still face an income that is far below their preferred minimum level.
- When we asked our clients and advisors what level of income would be preferred, we established that all things being equal, no mortgage and all other major debts repaid, most individuals would be very happy with an income of 50% of previous working salary. Based on long term performance of 7% and the average contributions of 8.5% for 23 years, coupled with existing pension value of £55,000 the average pension plan will provide between 20% to 35% of previous working income. As a result we have targeted 25% of income through 5 maximum pension contributions to be delivered after a total 25 year investment programme. We could have aimed higher, however, the reality is that individuals we dont think will ever choose a pension contribution over a mortgage payment, no matter how good the tax incentive may be. So affordability is also critical, we simply have to deliver better value for money than in the past, whilst also addressing other major consumer reasons for not saving. And last but not least, we also have to factor in the possibilities of consumer defaults, for whatever reason, without destroying the possibility of receiving a decent income, even if later than planned originally.
- The industry has fixated on charges, investment performance, poor administration, lack of technology, but changes in legislation has brought about the biggest changes leading to providers merging or withdrawing. However, has any of the last two decades of ‘improvements’ through restructuring actually worked?
- The graph below shows that on face value improvements by providers could have added as much as a third better pension, however, the reality is that few plans last 20 years. In fact analysis indicates that turnover is approximately 20%+ at best, with the average policy remaining in force for less than 3 years. Talk to employers and recruitment firms and you’ll be lucky to see an average higher than 5 years. So have all the millions spent by providers really benefited anyone? Remove all the hype and focus on the reality of ten years zero performance, combined with the turnover statistics and you don’t have to be a rocket scientist to establish that the government has had a pretty atrocious return for providing the most generous tax relief system. The consumer is also aware that the returns have been appalling and all the negative press sentiment aimed at the pension sector is in our opinion wholly justified on this performance. It is simply unfair that poor performance of this kind is still rewarded with investment houses and advisors continuing to earn millions in fees when the results are unacceptable. It is understandable why the consumer thinks all advisors and pension companies are greedy. It is time to focus on the real issues and commit to fairer terms.
- By analysing the trends and re-focusing on the main issues we can ensure that any revised strategy targets ways to improve the savings experience for investors. The industry has focused on charges and whilst they clearly will add value, on average they deliver the least impact than other factor. Investment performance justifications have also factored in all recommendations, however, asset allocations are proven to add between 80%-90% and to our knowledge we have yet to find a single investment house that achieved consistent above average performance against it’s peers on one fund, let alone the full range of unit linked funds it offers, so this too is a red herring. The biggest influencer is how much is contributed and how long it is invested for. In other words pay in as much as possible as soon as possible and the rest will take care of itself.
- But knowing all this information still won’t cut it with the consumer, largely it doesn’t matter who your pension is with, over a decade of failures have meant that property has been the easy winner over pension, even taking into account the recent turmoil. Taking everything into account, whilst it’s clear that changes have to be made, coming up with viable commercial proposition will take something extremely special.
- Noisnep is the UK’s 1st 3rd party pension sponsor – providing pension funding in reverse. For the first time ever, investors will only pay for investment returns once they have been delivered. We will do this by providing the capital to make pension contributions through interest free loans. The NOISNEP Investment Strategy targets 25% of working income, the average anticipated shortfall in pension income for qualifying investors. The strategy reduces risk to the lowest possible levels for the consumer and provides an unrivalled risk/reward investment package. We will commit to fixed investment returns at outset and should our investment strategy fail, there will be no comeback on the investor as our own capital is the principle used at outset along with the tax relief that would otherwise just have been a tax liability. Also in a UK first, NOISNEP will not apply any investment charges until we deliver on the investment promises we make at outset. A commitment that no other investment firm to our knowledge is prepared to make. And last but by no means least, by providing the capital to make long term pension provision, investors and their advisors have no restrictions on where or how investors save to repay us, with ISA’s being the obvious tax efficient vehicle of choice. This next section provides some more detail on how the investment strategy works.
- Noisnep is the UK’s 1st 3rd party pension sponsor – providing pension funding in reverse. For the first time ever, investors will only pay for investment returns once they have been delivered. We will do this by providing the capital to make pension contributions through interest free loans. The NOISNEP Investment Strategy targets 25% of working income, the average anticipated shortfall in pension income for qualifying investors. The strategy reduces risk to the lowest possible levels for the consumer and provides an unrivalled risk/reward investment package. We will commit to fixed investment returns at outset and should our investment strategy fail, there will be no comeback on the investor as our own capital is the principle used at outset along with the tax relief that would otherwise just have been a tax liability. Also in a UK first, NOISNEP will not apply any investment charges until we deliver on the investment promises we make at outset. A commitment that no other investment firm to our knowledge is prepared to make. And last but by no means least, by providing the capital to make long term pension provision, investors and their advisors have no restrictions on where or how investors save to repay us, with ISA’s being the obvious tax efficient vehicle of choice. This next section provides some more detail on how the investment strategy works.
- Noisnep is the UK’s 1st 3rd party pension sponsor – providing pension funding in reverse. For the first time ever, investors will only pay for investment returns once they have been delivered. We will do this by providing the capital to make pension contributions through interest free loans. The NOISNEP Investment Strategy targets 25% of working income, the average anticipated shortfall in pension income for qualifying investors. The strategy reduces risk to the lowest possible levels for the consumer and provides an unrivalled risk/reward investment package. We will commit to fixed investment returns at outset and should our investment strategy fail, there will be no comeback on the investor as our own capital is the principle used at outset along with the tax relief that would otherwise just have been a tax liability. Also in a UK first, NOISNEP will not apply any investment charges until we deliver on the investment promises we make at outset. A commitment that no other investment firm to our knowledge is prepared to make. And last but by no means least, by providing the capital to make long term pension provision, investors and their advisors have no restrictions on where or how investors save to repay us, with ISA’s being the obvious tax efficient vehicle of choice. This next section provides some more detail on how the investment strategy works.
- Noisnep is the UK’s 1st 3rd party pension sponsor – providing pension funding in reverse. For the first time ever, investors will only pay for investment returns once they have been delivered. We will do this by providing the capital to make pension contributions through interest free loans. The NOISNEP Investment Strategy targets 25% of working income, the average anticipated shortfall in pension income for qualifying investors. The strategy reduces risk to the lowest possible levels for the consumer and provides an unrivalled risk/reward investment package. We will commit to fixed investment returns at outset and should our investment strategy fail, there will be no comeback on the investor as our own capital is the principle used at outset along with the tax relief that would otherwise just have been a tax liability. Also in a UK first, NOISNEP will not apply any investment charges until we deliver on the investment promises we make at outset. A commitment that no other investment firm to our knowledge is prepared to make. And last but by no means least, by providing the capital to make long term pension provision, investors and their advisors have no restrictions on where or how investors save to repay us, with ISA’s being the obvious tax efficient vehicle of choice. This next section provides some more detail on how the investment strategy works.
- Noisnep is the UK’s 1st 3rd party pension sponsor – providing pension funding in reverse. For the first time ever, investors will only pay for investment returns once they have been delivered. We will do this by providing the capital to make pension contributions through interest free loans. The NOISNEP Investment Strategy targets 25% of working income, the average anticipated shortfall in pension income for qualifying investors. The strategy reduces risk to the lowest possible levels for the consumer and provides an unrivalled risk/reward investment package. We will commit to fixed investment returns at outset and should our investment strategy fail, there will be no comeback on the investor as our own capital is the principle used at outset along with the tax relief that would otherwise just have been a tax liability. Also in a UK first, NOISNEP will not apply any investment charges until we deliver on the investment promises we make at outset. A commitment that no other investment firm to our knowledge is prepared to make. And last but by no means least, by providing the capital to make long term pension provision, investors and their advisors have no restrictions on where or how investors save to repay us, with ISA’s being the obvious tax efficient vehicle of choice. This next section provides some more detail on how the investment strategy works.