DesigningannuityproductsforconsumersneedsPresentedbyMikeWadsworth

Partner,WatsonWyattmike.wadsworth@

AgendaOptionsforgeneratinglifetimeincomeConsumerneedsInvestingforlifeManagingsurvivalAnewmodel"Idon'twanttoachieveimmortalitythroughmywork-Iwanttoachieveitbynotdying"WoodyAllen"Peoplewillsoonlivetwiceaslongastoday,andhavethepotentialtolivefor1200years"JohnHarris,ScientistMemberofUKHumanGeneticsCommissionasreportedSundayTimes,25June2000Funeralfirmhitby29%profitfallNotenoughpeoplearedyingintheUS,accordingtoServiceCorporationInternational,theworld'slargestfuneralservicescompanyTimes,2October1999Scaleofopportunities

Peopleover65Source:USBureauoftheCensusAnnuityversusbondyieldIncometakenmonthlyinadvance;interestrate5%paAnnuityincomebrokendownintocapitalelementandthebalance(ieinterestelement)Optionsforretirementincome100%PensionerInvestmentGuaranteesPensioner

Survival

GuaranteesTraditionalAnnuityLump

Sum??WatsonWyattPartners2000

0%0%Traditionalannuities

SomeimportantquestionsHowmuchdotheguaranteescost?Howvaluablearetheytocustomers?earlyinretirement/laterinretirement?accordingtootherassets?Howwilllifestylesandneedschangeinretirement?Willcustomerschangetheirmindsovertime?Keyissuesfordesign

ThePensionerChoice(investment)Flexibility(income)Protection(survival)Communication(tradeoffs)FailsafeAlifetimeassetallocationmodelTraditionalEitherlumpsumOrannuityRetireRetireOptimumreturn(equities?)Optimumreturn(equities?)CashBondsBonds?WatsonWyattPartners2000AlifetimeassetallocationmodelProposedOptimumreturn(equities?)Optimumreturn(equities?)BondsRetire?WatsonWyattPartners2000Effectofinvestmentgrowthonsupportableincome-malesBaseincomesupportablecalculatedat5%.Incomemultiple=incomesupportableassumingextrainvestmentreturnresultingfromequityinvestmentof1,2,3,4or5%paaftercharges,dividedbybaseincome.Mortalityaspreviously?WatsonWyattPartners2000PlanningretirementincomeTheconsumerproblemis.....HowlongwillIlive?LifespanisadistributionnotanexpectationDistributionofdeaths

Retirementatage60Mortality:PMA92/PFA92Yearofuse2001?WatsonWyattPartners2000DistributionofdeathsbyagenowAge75now?WatsonWyattPartners2000Mortality:PMA92/PFA92Yearofuse2001DistributionofdeathsbyagenowAge90now?WatsonWyattPartners2000Mortality:PMA92/PFA92Yearofuse2001Standarddeviationofdeaths,asaproportionoflifeexpectancyMortality:PMA92/PFA92Yearofuse2001?WatsonWyattPartners2000MethodofcalculationNon-annuitisedfundIncomeeachyeardefinedas:

Fundvalue/annuityfactorAnnuityfactorcalculatedatassumedinvestmentreturnof0%or7%pa(excludingexpenses)Investmentreturnachievedequalto7%pa(excludingexpenses)Investmentreturnassumed:(exclexpenses)Investmentreturnachieved:7%pa(exclexpenses)Mortality:PMA92Yearofuse2001Initialfund￡100,000Maleaged60atoutset?WatsonWyattPartners2000Progressionofincome:spreadingfundoverfuturelifeexpectationProgressionofincome-annuitisedfundversus

non-annuitisedfundMortality:PMA92Yearofuse2001Maleaged60atoutset?WatsonWyattPartners2000SupplierviewofmortalityguaranteesMortalityimprovingHowfast1%pa?2%pa?3%pa?Infuture?Scopetoreview?Guaranteesare(too)expensive?Mortalitydrift-uncertainfutureimprovementsBothchartsshowexpecteddistributionofdeathsformaleaged60in1992,allowingforfutureimprovements.PMA92representsthemorerecentestimateCross-subsidyoperatesacrosseitherdistribution,andlongevityprotectionislargelyretainedevenifmortalityisreviewedDriftinanticipateddistributionallowingfornewerevidence?WatsonWyattPartners2000Excesssurvivors-PMA92comparedwithPMA80Costtoannuityproviderofnotreviewingmortalityrelatestopaymentsmadetothosesurvivorswhowerenotexpectedtolivesolong-theredzone?WatsonWyattPartners2000NewmodelInvestmentfund+InsuranceagainstsurvivalLifetimeincomemodel-benefitstatementUnitsUnitPrice Value￡￡￡￡StartofYear 10,00010.00100,000AnnuityPayments(975)(10,000)SurvivalBonus2953,000EffectofChangesinUnitPrice4,860EndofYear9,32010.5097,860TargetIncome

forNextYear10,000?WatsonWyattPartners2000Equivalentadditionalfundgrowthresultingfrommortality

cross-subsidyMortality:PMA92/PFA92CalendarYear2001?WatsonWyattPartners2000EquivalentadditionalfundgrowthMF%pa%pa754.12.88513.1 8.49533.2 21.2NB:PartialsurvivalprotectionpossibleFlexibleannuityreviewcycleInitialmax/minincomecalc'dAnnuitantselectsincomebetweenmaxandmintonextreviewPaymentsdeductedaccordingtoannuitantrequirements/survivalcredits/investmentreturnsaddedFundbalancedeterminedatreviewMax/minincometonextreviewcalc'd?WatsonWyattPartners2000FlexibleincomeThecorridorIncomelevelchosenbytheannuitantannualmaximumannualminimum?WatsonWyattPartners2001CommunicationofbenefitsIncomeprojections-incometakeninitially=incomesupportableat7%pa?WatsonWyattPartners2000Incomeprojections-incometakeninitially=1.1xincomesupportable

at7%pa?WatsonWyattPartners2000Incomeprojections-incometakeninitially=0.9xincomesupportable

at7%pa?WatsonWyattPartners2000Incomeprojections-variableinvestmentmodel?WatsonWyattPartners2000FailsafeDefaultinvestmentstrategies,egequitiesbondsoverlifetimeProgrammedswitchingtoguaranteeathighageProgrammedswitchingtoguaranteeonsustainedmarketfall,egJapanscenarioVoluntaryswitchingNB:MorefeaturesbettersystemsAnnuitydevelopments-unbundlingdynamicMoreimpairedlife/

enhancedannuitiesOtherg'teedannuitiesmoreexpensive/lessprofitableMoreequitybasedannuitiesWeakerlongevityguarantees?WatsonWyattPartners2002EffectofLTCrideronincomeBeforeLTCclaimAfterLTCclaimTheproductisavariableannuitypriortoclaim,thenafixedLTCannuityafterclaim,plusacontinuingvariableannuity(whichcouldconverttoaconventionalannuity).Thelevelofbenefitischosenbytheinsured.C

LAI

MIncomesupportablewithnoLTCrider(normalincome)LTCincome=50%ofincomepre-claimIncome=~96.5%ofnormalLTCincome=100%ofincomepre-claim

Income=~92.5%ofnormalAdvantagesoflifetimeincomemodelPensionersnaturalextensiontoDCpensionvehiclechooseandvaryassetallocationflexibilityofincomeoptimiseincomerelativetoriskInsurers/fundmanagerslongevityriskmanageablepotentialsegmentationofrisksnotrestrictedbyavailablebond(orother)investmentsglobalmultimarketapplicationAlsofinancialplanners/bondsuppliersDesigningannuityproductsforconsumerneedsPresentedbyMikeWadsworthPartner,WatsonWyattmike.wadsworth@May20029、靜夜夜四無無鄰，，荒居居舊業(yè)業(yè)貧。。。12月月-2212月月-22Wednesday,December14,202210、雨中黃葉樹樹，燈下白頭頭人。。02:36:2802:36:2802:3612/14/20222:36:28AM11、以我獨(dú)沈沈久，愧君君相見頻。。。12月-2202:36:2802:36Dec-2214-Dec-2212、故人江海海別，幾度度隔山川。。。02:36:2802:36:2802:36Wednesday,December14,202213、乍見翻疑夢夢，相悲各問問年。。12月-2212月-2202:36:2802:36:28December14,202214、他鄉(xiāng)生白發(fā)發(fā)，舊國見青青山。。14十二月月20222:36:28上午02:36:2812月-2215、比不了了得就不不比，得得不到的的就不要要。。。。十二月222:36上午午12月-2202:36December14,202216、行動(dòng)動(dòng)出成成果，，工作作出財(cái)財(cái)富。。。2022/12/142:36:2802:36:2814December202217、做前前，能能夠環(huán)環(huán)視四四周；；做時(shí)時(shí)，你你只能能或者者最好好沿著著以腳腳為起起點(diǎn)的的射線線向前前。。。2:36:28上上午2:36上上午午02:36:2812月月-229、沒有失敗敗，只有暫暫時(shí)停止成成功！。12月-2212月-22Wednesday,December14,202210、很多事情情努力了未未必有結(jié)果果，但是不不努力卻什什么改變也也沒有。。。02:36:2802:36:2802:3612/14/20222:36:28AM11、成功功就是是日復(fù)復(fù)一日日那一一點(diǎn)點(diǎn)點(diǎn)小小小努力力的積積累。。。12月月-2202:36:2802:36Dec-2214-Dec-2212、世間成事，，不求其絕對對圓滿，留一一份不足，可可得無限完美美。。02:36:2802:36:2802:36Wednesday,December14,202213、不知香積寺寺，數(shù)里入云云峰。。12月-2212月-2202:36:2802:36:28December14,202214、意志堅(jiān)強(qiáng)強(qiáng)的人能把把世界放在在手中像泥泥塊一樣任任意揉捏。。14十二二月20222:36:28上上午02:36:2812月-2215、楚塞塞三湘湘接，，荊門門九派派通。。。。。十二月月222:36上上午午12月月-2202:36December14,202216、少年年十五五二十十時(shí)，，步行行奪得得胡馬馬騎。。。2022/12/142:36:2802:36:2814December202217、空山山新雨雨后，，天氣氣晚來來秋。。。2:36:28上上午2:36上上午午02:36:2812月月-229、楊柳柳散和和風(fēng)，，青山山澹吾吾慮。。。12月月-2212月月-22Wednesday,December14,202210、閱讀