Retirement Strategies

Speaker(s): Beatrice Male, Marie-Lise Tassoni (Milliman)

The European retirement market is now home to a diverse and growing range of products designed to provide a regular income throughout retirement. These products provide different guarantees, different levels of financial freedom and security, all of which will influence the price or charges for a particular product.

Faced with an uncertain future many customers are drawn to the peace of mind that a guarantee provides. But is a guaranteed product really the best choice for everyone?

To answer this question, our firm carried out a quantitative review of retirement guarantees based on the retirement products market at the end of 2015. We modelled the main types of income guarantee products offered in the UK retirement market to see how they would perform under 1,000 potential future investment scenarios across all ages of retirement. We propose updating this analysis for current market conditions and including some products available in Europe that are not commonly found in the UK market.

When it comes to choosing a retirement product, the right course of action will largely depend on the customer. Because every customer is different, we studied the retirement problem through the eyes of three example customers, each of whom has a different risk appetite and different preferences over the pattern of income that they receive over their retirement.

The results that we will produce for our updated analysis are likely to mirror those in the previous paper and so we plan to use similar metrics, including:

• The amount of money that the customer gets back per £1 of at-retirement savings
• The retirement income received in each year in an average and poor investment scenario (1-in-20 worst scenario)
• Percentage of future investment scenarios in which guaranteed products can provide more or equal income to a drawdown product