Intrinsic Cirilium funds added to investment-linked annuity

The addition of the Cirilium funds to the Flexible Income Annuity product allows Intrinsic advisers to offer more choice to clients and manage their portfolios seamlessly and consistently.

In the current economic climate, with clients looking for a better return from their annuity, our investment-linked solution can provide income growth, will take into account health and lifestyle, and help mitigate the risk of inflation.

Chris Jones, Head of Financial Planning, Intrinsic Financial Services, commented: ‘The Cirilium fund range is highly regarded on account of its risk control, diversification and track record. We are delighted that MGM are choosing to include these funds within their investment-linked annuity range.’

About the Cirilium fund range and Flexible Income Annuity:

The Cirilium fund range is available on a whole of market basis and can be used by Intrinsic and Positive Solutions advisers using the Flexible Income Annuity for clients. The funds are managed by Intrinsic Cirilium Investment Company Limited.

Intrinsic Financial Services was established by Lord Leitch, the former global CEO of Zurich Financial Services life businesses. The venture has the financial backing of Friends Life and South African insurer Sanlam. Intrinsic launched in March 2006 and currently has more than 2100 advisers in the UK. The Intrinsic Group has a current annualised turnover of over £120m.

The Flexible Income Annuity offers advisers and their clients a choice of eight risk rated funds, in conjunction with Morningstar OBSR, covering both active and passive investing.

Act now to protect your clients' pension benefits

Another tax year, and we see another reduction in the lifetime allowance and personal allowance for pension benefits. Come April 2014, these will reduce to £1.25m and £40,000 a year respectively. Whilst these changes won’t affect all of your clients, there will be some who will be caught. And these clients need to act now to make sure they protect what pension benefits they have already built up.

Paying in more than £40,000

Although the personal allowance will fall from £50,000 to £40,000 from April 2014, those who want to pay in more than that do have some options. By using carry forward someone paying in a lump sum after April 2014 with a pension input period (PIP) ending in 2014/15 could pay in up to £190,000, depending on the size of the pension contributions they have made over the previous three years.

Protecting pension benefits

Those who have already built up benefits over £1.25m, or are likely to do so, will want to protect these against the fall in lifetime allowance. These people are spoilt for choice; they can use two different types of protection – individual protection 2014 and fixed protection 2014.

How do the protections work?

Fixed protection allows clients to keep a lifetime allowance of £1.5m, but only as long as they do not make any further contributions or have benefit accrual in a defined benefit scheme above a ‘relevant percentage’.

If in the future, legislation is introduced to increase the standard lifetime allowance above £1.5m, then fixed protection is revoked, and individuals will be able to begin contributing to pensions again.

The legislation for individual protection is not yet finalised – instead it’s expected to be included in the Finance Bill 2014, which will become law about July 2014.

However, we do know individual protection is designed to protect benefits between £1.25m and £1.5m. Those with benefits valued above £1.5m will still be able to apply for it, but protection will be capped at £1.5m. The individual protection 2014 amount will become their personal standard lifetime allowance, and anything above this amount will be taxed at a rate of 55%.

What protections should clients apply for?

Some clients will have more influence over their remuneration package than others. If, for example, they are able to negotiate a higher salary in return for no further employer pension contributions, then they may want to opt for fixed protection.

But others won’t have this option. If they benefit from employer contributions but are unable to take an alternative (for example higher salary or dividends or other benefits) then they may want to consider individual protection. Even though they will pay 55% charge on anything above their personal LTA, they will still receive 45% of anything built up, and that is better than 100% of nothing.

Fixed protection takes precedence over individual protection, but if your clients have funds above £1.25m it’s worth applying for both. So if fixed protection is broken – for example they pay in a contribution because investment markets have been poor and they want to boost the value of their pension fund before retirement – then they can then rely on individual protection.

Fixed protection and automatic enrolment

Employers are required on their staging date to automatically enrol all qualifying employees into a pension scheme and to pay contributions for them. People who have fixed protection 2014 need to make sure they opt out of the automatic enrolment pension scheme within one month, otherwise their fixed protection will be lost. They will be automatically re-enrolled every three years, and will need to make sure they opt out each time. The obligation is on the individual to opt out – no-one else can do this for them.

What should clients do now?

If your clients are opting for fixed protection then it may be worthwhile maximising pension contributions before 5 April 2014. They can carry forward any unused annual allowances (subject to having sufficient earned income) to make a significant pension contribution now.

They have until 5 April 2014 to make their bid for fixed protection, but until 5 April 2017 to apply for individual protection.

Conclusion

As we see further cuts in the pension benefits, protecting what clients have already built up becomes even more important, and even more complicated.

Fixed protection 2014 and individual protection 2014 give clients options about how to protect their benefits, depending on how much they have and whether they are able to re-negotiate their remuneration package to replace the value of employer pension contributions.

As the deadline of 5 April 2014 approaches, you can help your clients make sure they are in the best position to protect their future retirement income.

Enhanced annuity telephone service provides better customer experience and best rate

• 90% of application forms for enhanced annuities received by MGM Advantage are incomplete first time around
• Gap filling forms could provide on average a 3%¹ increase in the annuity rate offered
• Free telephone interview service launched to advisers to help improve service and rates offered to clients

MGM Advantage, the retirement income specialist, has launched a free client telephone interview service for advisers to use when providing advice on enhanced annuities. The in-house service aims to improve the experience for clients during the quotation process, remove the risk from adviser businesses from incomplete medical forms and ultimately offer a competitive annuity rate first time.

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The free telephone interview service aims to address many of the problems both advisers and providers face when trying to put clients on risk. We appreciate advisers are busy people, so the process has been designed to save them time, while also removing the risk of the complex medical forms being incomplete.

Our research has found customers often feel reluctant to disclose their full medical history to their adviser, which is entirely understandable. Our interview process is handled by trained individuals who know the right questions to ask for further clarification and disclosure. This ensures all relevant information is captured sensitively, which often can provide a significant increase in rate because we have a full picture of their health and medical conditions.

Jules Charrington, Chief Underwriter, MGM Advantage

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Upon completion of the telephone interview service, a PDF version of the Common Quotation Form (PDF CQF) is produced which is sent to the adviser, who can then, if appropriate, broke the market for the most competitive rate.

1. Source: MGM Advantage – over 2013 client rates on enhanced terms were improved by on average 3% following form gap filling.

FCA thematic review: consumers are not getting the best value.

The FCA has issued its thematic review into the annuity market, and the overall finding is a high percentage of consumers are not getting the best value when they turn their pension savings into a retirement income.

The main findings of the report are – 

• 80% of customers who buy an annuity from the provider they have saved with (and don’t use the open market) could get a better deal. The average benefit of switching is 6.8%, while one in six people could benefit by more than 10%. For people suffering from some health condition the potential benefit is much higher.
• People with small pension pots are not well served in the current market
• A competition market study is required to assess why more customers don’t shop around. This will include scrutiny of provider retention teams and how they sell business to existing customers. 

A separate consultation will be undertaken around comparison websites where the FCA found, in general, examples of poor practice including unclear disclosure of costs, and misleading information.

While it’s good to see regulatory scrutiny, the main finding that those who stay with their holding provider are likely to get a poor deal isn’t a surprise. It echoes the clear messages we and other commentators have been giving over the past few years. It’s clear the ‘internal’ market is broken, and the simple solution is to get everyone using the external market.

One simple statistic highlights the problems with the internal market. Of the 50% of people who stay with their current pension provider, currently only 6% go on to buy an enhanced annuity. More than 50% of those who use an adviser to shop around get an enhanced annuity, which suggests around 44% of internal customers receive a poor deal. We calculate this equates to £435m ‘lost’ income during the course of an average retirement for people reaching retirement in the three quarters of 2013. And that is, if anything, an underestimate as our calculation uses average annuity rates available in the open market, when in fact many who buy from their holding provider will get rates far below this level.

So what does the FCA propose to do? In essence a large market study which aims to report back within 12 months of launch. All well and good, and hopefully this will lead to some long-term benefits to retirees.

But my view is this doesn’t go far enough, quickly enough. Delaying making any changes for a year and more (the issue of the report is likely to coincide with the next general election which may delay any recommendations being implemented) will leave hundreds of thousands of people who take benefits over the next year no better off.

Although the review puts the spotlight firmly on the issues that need to be addressed, another year or two of customers sleepwalking into retirement is simply not good enough. There are some simple and practical steps we can take now to help those people looking to take benefits from their pensions. This could be done in tandem with the competition market study which will take some time.

At MGM we recently published our ideas for change in this market. Full details can be found here: Retirement Rescue Plan.  Many of these changes could be implemented quickly and simply, helping people retiring now – while the FCA market study is taking place.

For example, HMRC could quickly increase the standalone trivial commutation limit (alongside simplifying the rules) so that anyone with a pension pot of less than £10,000 can simply take their benefits as a lump sum. This would benefit those with small pots – a group of customers the FCA believe are poorly served by the current market.

And to encourage more people to use the ‘external’ market and shop around for the best deal, the FCA (or ABI as an industry-led solution) could introduce a process where a customer buying an annuity from their holding provider would have to sign a disclaimer - clearing stating they understand this action may mean they lose money. But, alongside that, the provider would need to demonstrate this was a suitable purchase – in line with the principles of Treating Customers Fairly. An easy way to push more people to the open market, which FCA believes is generally working well.

The FCA report is another key step forward to making the retirement income market work better for ALL customers. But we need to make sure that help starts now, not in 12 or 15 months time.