London, England, November 20, 2003 � Tillinghast � Towers Perrin believes that thousands of people could be receiving significantly reduced incomes in retirement because they have purchased conventional guaranteed annuities even if their advisers have shopped around to get them the best rates. Advisers are overlooking the possibility of making their customers substantially better off by using investment linked annuities or income drawdown. These options are frequently simply dismissed as being too risky and no attempt is made to help customers reduce these risks to acceptable levels by well designed investment strategies. The actuarial and management consultant claims that when purchasing an annuity, investors often don’t receive the necessary information needed in order to make informed decisions.
Purchasing an annuity, which involves buying an income for life with your pension fund, is one of the most important financial decisions people will ever have to make. However, Tillinghast � Towers Perrin says that because of the complexity of the choices available and the lack of asset allocation expertise of most financial advisers, consumers are not provided with any alternatives beyond very expensive conventional guarantee annuities.
Bruce Moss, Principal, Tillinghast � Towers Perrin said: “Advisers need to make much greater use of online advice tools using stochastic modelling techniques when advising clients on their retirement income options.” These tools not only enable advisers to construct risk reducing strategies to provide retirement income for their customers but they also are critically important in helping customers understand the effect of the choices they make. For example compared with a conventional guaranteed annuity, a blend of conventional annuity, investment linked annuity and income drawdown for a man retiring at age 55 could result an improvement in retirement income of just over 20% in his first year of retirement, growing to over 40% after a further 10 years. Stochastic modelling techniques can show that the chances of this blend failing to deliver as much income as a conventional guaranteed annuity are low. Customers can then make informed decisions about whether they are prepared to take this risk given the potential upside.
“With ever improving life expectancy, people can look forward to 20 to 30 years of retirement” says Bruce Moss “and as a result need to invest for the long term. This means buying investments that can deliver long term growth in value. Stochastic advice tools can help customers to understand the benefits of taking the long view and can help advisers construct strategies which remove short term risk to acceptable levels.”
“The financial services industry has a duty to provide people with more attractive options than simply buying a conventional guaranteed annuity which is what most people end up with by default. But it is also crucial that customers are given a realistic view of the risks they are undertaking with their chosen options.”
Tillinghast � Towers Perrin’s on-line advice system eValue is based on stochastic modeling. “It is available to product providers, financial advisers and employers who wish to provide tools which staff can use when making their financial decisions. It has a broad focus including retirement planning and other financial goals such as school fees planning, repaying your mortgage and maximizing your income in retirement.”
About Tillinghast � Towers Perrin
Tillinghast � Towers Perrin provides actuarial and management consulting to financial services companies worldwide and advises other organisations on their self-insurance programmes. As a premier and independent advisor to the insurance industry, Tillinghast’s major clients include most of the world’s top insurance organisations.
The firm operates globally with consistent professional standards through a network of 42 offices in 20 countries. Tillinghast is part of Towers Perrin, one of the world’s largest management and human resources consulting firms with over 9,000 employees. Towers Perrin helps organisations manage their investment in people to achieve measurable performance improvements. More information about Tillinghast is available at (www.tillinghast.com).
