Why the Pensions Dashboard is more than a

Why the Pensions Dashboard is more than a Data Collection Exercise 24 June 2019

Where are we today? • Consultation response issued April 2019 – “…for too long, pensions have been obscure, hard to understand inaccessible to many. Pensions dashboards will change this. Simple information, securely provided to your phone or computer will provide key information on a saver’s pension. ” – “In the first phase of dashboards’ development, no additional regulations are needed to ensure consumers using dashboards are appropriately protected. ” • What can the actuarial profession bring to the party – Comparability of benefits in a consistent manner – Understanding of risk 24 June 2019 2

Phased functionality Dashboard v 1 ‘Find and View’ Dashboard v 2? Additional functionality – Value of my benefits Dashboard v? (Many dashboards? ) • Find pensions • Click throughs • Risk assessment • Collate information • Current fund • Retirement planning • Introduce Dashboard values/CETVs • Interactive tool • Options and guarantees • Investment choices • Contingent benefits • Decumulation options • Fee structure 24 June 2019 3

How do we deal with…DB and DC Defined Benefit Defined Contribution • Default “decumulation” – scheme • No default decumulation option pension • Arbitrary Normal Retirement Age • Normal Retirement Ages (varying by • Optional pension increases scheme and often multiple) crucial to • Optional survivors’ benefits interpreting accrued benefit promise • Factors less important? • Defined pension increases • Market sensitive • Defined survivors’ benefits • Expected returns on assets differ • Option factors widely • Market insensitive • Concentrated occupational market, but • Limited choice of revaluation methods lots of individual personal arrangements too 24 June 2019 4

How do we deal with…DB and DC State @ SPA Add DB@SPA ? Initially DB@ NRA(s) 24 June 2019 Different pension ages Initially DC @ NRD? Add DC@SPA ? 5

How do we deal with…DB and DC ABC Mastertrust – www. ABCmastertrust. co. uk Expected Retirement Income 16000 Projected Pension - £ 2, 500 pa payable from age 65 Projected Pension - £ 5, 000 pa payable from age 60 Retirement Income XYZ PLC Pension Scheme – www. XYZpensions. co. uk 14000 12000 10000 8000 6000 4000 2000 Basic State Pension – www. gov. uk 0 60 61 62 63 65 66 67 68 69 70 Age Projected Pension - £ 6, 000 pa payable from age 67 ABC 24 June 2019 64 XYZ Basic State Pension 6

Who sets DC projection assumptions? Provider-set • Builds on SMPI approach, and can be consistent with it • Captures variety and complexity of asset strategies, lifestyling and expenses. • Can cope with scheme-specific features, e. g. guarantees and factors • Requires providers to do projections (at least to retirement)? Dashboard-set • Reduces provider work • Same expected returns for similar assets • Loses variety and complexity of asset strategies, lifestyling and expenses – and therefore less accurate? • No scheme-specific features • Inconsistency with SMPIs…unless SMPIs aligned with dashboard methodology • Expected return competition? 24 June 2019 7

Who sets DC projection assumptions? • Future Contributions under SMPI – Can be flat, inflation linked or earnings linked • 25 yr old earning £ 25 k pa with an estimated retirement age of 68 currently contributing 10% of salary 24 June 2019 No increases Inflation linked (assume 2. 5%) Earnings linked (assume 3. 5%) £ 160 k fund at retirement £ 283 k fund at retirement £ 357 k fund at retirement 8

How do we deal with…different risk profiles? Investment Personal Health Longevity Risks Data Inflation Covenant June 2021 9

How do we deal with…different risk profiles? Investment Risk Rating A B C D E Current Risk Rating - 75 Needs something that is understandable by the consumer, but who is going to develop and assess this F G June 2021 10

How do we deal with…guarantees and options? GARs Schemespecific lump sum protection Schemespecific / complex Guarantees & options Protected pension ages CDC Factors June 2021 11

What happens next? • Industry Delivery Group – Must ensure areas of the industry who can support the translation/comparability of benefits are well represented – Highlight the importance of consistency across pensions communications – Be clear about future functionality and ensure that building blocks are put in place to support it 24 June 2019 12

Questions Comments The views expressed in this presentation are those of invited contributors and not necessarily those of the IFo. A. The IFo. A do not endorse any of the views stated, nor any claims or representations made in this presentation and accept no responsibility or liability to any person for loss or damage suffered as a consequence of their placing reliance upon any view, claim or representation made in this presentation. The information and expressions of opinion contained in this publication are not intended to be a comprehensive study, nor to provide actuarial advice or advice of any nature and should not be treated as a substitute for specific advice concerning individual situations. On no account may any part of this presentation be reproduced without the written permission of the IFo. A. June 2021 13