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Introduction - Momentum Sales Marketing


									Momentum Employee Benefits Investments – 
With profit annuities training for Financial Advisors

                                         Linda Ritchie

                                         4 November 2012
•   Background
•   Golden Income With-Profit Annuity
•   Annuity Retailisation
•   Conclusion
What happens at retirement?
•   Often the largest accumulation of wealth in an individual’s life
•   Financial Goals
     o Continuity of income and maintain standard of living
     o Leaving money as bequest
•   Very stressful period
     o Due to changes in life, maintain self worth and health
     o No longer fall under “wing” of employer
     o Important (sometimes daunting) decisions to be made
•   Individual often requires impartial/unbiased guidance or financial advice
What is there to choose from in the market?
•   Take benefit in cash
•   Choose guaranteed annuity from insurer
     o Guaranteed to pay for life
     o Guarantees current level of pension (Level annuities);
     o Provide for future increases (With-profit annuities or fixed escalating);
     o Guarantees inflation increases (Inflation-linked annuities)
•   Buy a living annuity
     o Provides no guarantees
     o If money is depleted – no further income
     o If money is not depleted at death – remaining money reverts to
•   Combination of guaranteed and living annuity
The market

Financial Advice
•   Individual requires unbiased advice to choose the correct solution
•   Advisors need to provide “best advice” for retirees
•   Remuneration from selling living annuities greater than other annuities –
    living annuities are not always appropriate for all clients
•   Retirement Reform process
     o Preservation
     o Purchase annuities
     o Emphasis on low cost solutions
•   Fund Trustees and Advisors are realising members left out in the cold at
    retirement date
The Solution
•   Selection of an appropriate annuity product to suit the needs of most
    members – still on voluntary basis
•   Obtain quotes from the various provider/s
•   Present the quote to retiree and the benefits of selecting the chosen
•   Low cost option aligned with proposals for retirement reform
•   Can be implemented on a default annuity selection, no advice, no
    commission basis
•   Best product in the market in terms of increases
Golden Income With-Profit Annuity
Product features
Product features
•   Description – Provides regular pension for life as well as the opportunity to
    participate in investment and mortality profits via an annual pension
•   Objective – To provide minimum guaranteed pension for life, aim to:
     o Declare competitive pension increases;
     o Avoid declaring zero pension increases; and,
     o Declare pension increases that keep pace with inflation over the long-
•   Risk profile – Moderate. Future increases are linked to the performance of
    the assets.
•   Our guarantee – Pension will never decrease. Each time an increase is
    awarded, the new higher amount is guaranteed for life.
Golden Growth’s unique features
•   Uses dynamic hedging to accurately price and manage the product
      • All embedded investment guarantees priced accurately up front and no
         clawbacks from future bonuses
      • Funding level maintained at 100% due to dynamic hedging
      • No entry time dependence – no funding level cross subsidy at entry
•   Lower charges, including capital charge
•   Transparent pension increase formula based on weighted average of 
    6 years underlying asset performance
•   Greater exposure to growth assets and these are actively managed
•   Built in future increases

Leading to significantly enhanced expected bonuses
Long term asset allocation in reference portfolio

•   Asset allocation drives bonuses
     o Aggressive allocation to equities
     o Total equity exposure of 60%
     o Bonds split between inflation-linked
           and conventional
•   High equity exposure improves the
    increase expectations over the longer
Drivers of future increases
•   Future increases depend on
     o Return on underlying investments (1)
     o Explicit charges (2)
     o Implicit charges (3)
     o Chosen PRI (4)
     o Mortality profits (5)
     o Distribution of built-in increases (6)

•   Future increases ≈ (1) - (2) - (3) - (4) ± (5) + (6)

•   Typically only the price and 4 are used to compare WPA’s
Drivers of future increases
What differentiates GGWPA
•   Future increases depend on
     o Return on underlying investments (1) (Expected to be 0.64% higher 
        than competitors)
     o Explicit charges (2) (0.7% lower than competitors)
     o Implicit charges (3) (generates 1.35% higher expected increases)
     o Chosen PRI (4)
     o Mortality profits (5)
     o Distribution of built-in increases (6) (0.96%  higher  expected 

•   Future increases ≈ (1) - (2) - (3) - (4) ± (5) + (6)  = 3.65%

•   Typically only the price and 4 are used to compare WPA’s
How traditional market offerings claw back adverse 
performance from policyholder increases
                                                        Rolling 12-month return in excess of 3.5% PRI

                                                                      What happens here?





                                                                                                                                     What happens here?



























Increase comparison (Annual increases)

     Pension increase history compares well to competitors
                 Increases based on a 3.5% PRI
Increase comparison (Cumulative)
Dynamic Hedging
•   If you have a known set of cash flows and

•   If increases are explicitly based on some reference asset and

•   If we have information about the riskiness of the reference asset

•   Then you can accurately determine a market value of the cash flows and

•   Dynamic Hedging used to price and manage risks

•   Different from an expected value approach to pricing and managing risk
Dynamic Hedging
•   Risk neutral pricing determines an accurate market price of guarantees
•   Prices the cost of non-negative increases up front
•   Allows more exposure to growth assets in the reference portfolio
•   Transparent
•   No inter generation smoothing i.e. no cross-subsidy at inception
•   No conflict of interest between shareholders and policyholders
•   Reduced capital requirement means lower charges to policyholders
•   Metropolitan were the first to introduce this pricing technology in 2007
How dynamic hedging works
                                                                                   6. Built-in increases

Smoothing formula
•   Momentum’s smoothing formula is fully transparent
     • The weighted average of the past 6 years returns on underlying assets

            *   The 2011 return is YTD to July

• To compare Momentum’s level of built-in increases with a traditional competitor
  that has a bonus stabilisation reserve of zero after 6 years, you need to assume
  future returns will equal the PRI% p.a.

                                            Post Retirement Interest Rate (PRI)
 Expected future 
                             2.5%         3.0%      3.5%       4.0%       4.5%    5.0%
        PRI%                 21.1%        19.3%     17.6%      16.0%      14.4%   12.8%
Bonus & Increase for 2012

  2012 Bonus is 9.5%

  2012 increases for the various PRI’s

            PRI                    Increase
            2.5%                    6.83%
            3%                      6.26%
            3.5%                    5.7%
Benefit options
•   Spouses pension:
     o Spouses pension reversion chosen by the pensioner at retirement and
       in case of multiple spouses the pension will be divided amongst all the
       surviving spouses
•   Guarantee period:
     o Maximum of 15 years
•   Children's pension:
     o   Provide children's pension up to the age of 18 - can be extended to 25
         with proof of study
•   Lump sum death benefit
•   Bonus pension (13th cheque)
Post Retirement Interest Rate
•   Maximum PRI is 3.5%
•   Consider it the minimum net investment return required to maintain a
    pensioners current level of income
•   The PRI is the level of investment guarantee provided by the insurer.
•   PRI (%) is CHOSEN by the pensioner to meet their needs- once the PRI is
    chosen it can’t be changed later on
•   Based on the PRI selected a guaranteed regular pension amount FOR
    LIFE is calculated e.g.
    o High PRI = high initial pension & low increases
    o Low PRI = low initial pension & high increases
Product Fees

•   Initial Administration Fee: 1% plus R174 during 2012 increasing by CPI
    every year.
•   Monthly Administration Fee: An amount of R52.50 per pensioner per month,
    during 2012 increasing by CPI every year. The monthly fee is in respect of
    ongoing administration functions.
•   Annual Fee: 1% p.a. and increases by 0.05% for every 0.5% of PRI above
    2.5%. For example, for a 3.5% PRI the fee is 1.10%. This covers the capital
    charge, expense charge and asset management fee.
Annuity Retailisation
What is Retailisation?
•   ABSA Consultants and Actuaries partners with an insurer to provide a
    selected annuity product to retiring members on retirement
•   Selection of an annuity product that is appropriate for most members at
•   Retiring members have a good starting point for securing their retirement
•   Cost effective solution for enable retiring member to achieve financial goals
    in retirement
•   The quotes and subsequent processes are streamlined between the insurer
    and, typically, the Fund administrator
How can Momentum EBI assist?
•   We are experienced in the annuity retailisation process
•   Transnet and Alexander Forbes are some of our successes
•   We have a range of products to choose from
     o With-Profit Annuities
     o Inflation-Linked Annuities
•   Flexibility in methods for obtaining quotes
•   If preference for individual advice to members, remuneration can be
    fee-based or commission-based
What is required to implement retailisation?
•   Choose the appropriate annuity product and quotation specifications
•   i.e. The financial planners/advisors
•   Discuss and implement the various processes
     o Quotation and initial communication
     o New business submission process
Example: Fund’s preselected quotation specifications
              Criteria                                    Selection *
Pension Portfolio Name                  Momentum Golden Income With-Profit Annuity
Pension Increase Type                   With-Profit
Pricing Interest Rate                   3.5%
Pension Payable                         Monthly in Arrear
Annual Increase Date                    1 April
First Increase                          Proportionate
Minimum Capital Purchase
                                        R 250 000
13th Cheque                             Not Applicable
Guaranteed Period                       5 Years
                                         Spouses Pension, if married
Second Life Pension
                                         No second life, if not married
Second Life Pension Percentage           75%
Commission                               No Commission

* Specifications have been selected as a default. Members may request some changes and we can
quote based on their individual requirements.
Information needed from the Fund’s 
administration team for quotations
•   Pre-selected default quote specifications
•   The additional information needed is (can be supplied in an excel form):
     o Member’s name and surname
     o Gender
     o Date of birth
     o Date of retirement
     o Spouse date of birth
     o Capital Purchase amount
Requesting quotes
•   There are three ways that quotes can be supplied
•   The options are:
     o Quotation requests can be e-mailed to Momentum's quotes team, who
        will respond in one working day web-based quotation system
     o Fund administrator login to
     o Automated interface - Build IT Webserver interface where Fund’s
        administration system seamlessly requests quotation from
        Momentum’s quotation system
•   The option selected is driven by expected quotation volumes, Fund
    administration system capabilities, administration resources available etc
Momentum Annuity Quotation
Cover letter
•   Fund and Advisor will need
    to decide on the detail in the
    letter to be sent out with the
    annuity quote to the member
    Once client has accepted quotation
                                                              Take on requirements

                                   Momentum requires the following information for all new pensioners in
The Fund will need to submit to   order to comply with the latest requirements from SARS. This is a legal
Momentum’s quotes team:           requirement without which Momentum will be unable to process new
                                  business applications.
•    Signed quotation;
                                         1. Initials, first two names and surname;

•    Signed and completed                2. ID Number; (spouse’s ID number where applicable)
                                         3. Passport number and country of issue (where no SA ID is available);
     application form;                   4. Date of Birth;
                                         5. Spouse’s Date of Birth;
•    Proof of payment of                 6. Income tax reference number;
                                         7. E-mail address (where available);
     purchase amount;                    8. Business, cell, home telephone and/or fax numbers;
                                         9. Physical business, postal and residential address;
•    Member’s take on
                                         10. Directive numbers (where applicable);

     requirements                        11. Bank account details, including:
                                                   a. Bank account type;
                                                   b. Bank account number (into which the salary, pension or annuity
                                                             is paid);
                                                   c. Bank Name;
                                                   d. Branch name and number;
                                                   e. Account holder name; and
                                                   f. Account holder relationship (either own, joint or third party).
Retail annuity timeline*
           Time                               Process                       Responsible
 Prior to members’           Receive details of members expected to
 retirement                  retire in x months and request quotes
 1 working day               Prepare/request quotes from EB Annuities        EB Annuities

                             Retirement packs circulated to members incl.
                             1) Cover letter
 After receiving quote       2) Individual retirement quote                 Fund/Advisor
                             3) Annuity brochures
                             4) Annuity application form
 Accept quote within 3       Quote needs to be accepted within 3 months
 months                      or we will need to requote

 3 months prior to           Provide signed annuity quote to quotes team,
 retirement                  together with signed application form.

                             EB annuity purchase process commences and
 Post retirement date                                                        EB Annuities
                             regular pensions are paid to members

                     * Fund needs to decide on the timeline to following
Process flow chart *
     5 Forward client’s signed quote, proof of payment,
              application with take on requirements

          1      Request member                     4     Receive signed quote, application
                     quotes                                  with take on requirements

 Momentum’s                             Fund’s
annuity quotes                                                                 Retiring
    team                                                                       member

                 2    Send quote
                                                3        Attach letter &
                     1 working day
                                                      quote & mail to client

                      Send acceptance letter & contract document

                         * Refer to the retail annuity timeline for timings
Service Level Agreement

•   To be entered into between ABSA C & A and Momentum
•   Clarifies responsibilities and service standards
EB Annuities Quotes Team Contact Details

          Quotes, queries and assistance.


                Tel: 021 917-3010
Annuity payment process
•   Once application form with supporting documents are submitted and

    purchase consideration paid

•   Annuity payment commences
Communication to annuitants
•   Welcome letter and contract at inception

•   Monthly remuneration advice

•   Annual tax certificates and annual pension increase letters

•   With-Profit Annuity – Feedback Reports twice a year

•   Support by a dedicated administration team
•   Significant value add to retiring member in securing retirement income

•   Low cost option

•   Comfort regarding welfare of retiring members-pursuit of best advice for

    financial planners
•   This presentation  should not be  regarded  as  advice.  Whilst all reasonable  
    care  has   been  taken  in  the  preparation  thereof, MMI Holdings Limited, its 
    subsidiaries,  including  Momentum  Group  Limited  and  Metropolitan  Life 
    Limited, and its employees shall not be liable  for any loss, damage (whether 
    direct or consequential) or expense of any nature which may be suffered as a 
    result of or which may be attributable , directly or indirectly , to the use of or 
    reliance upon it.

•   We  suggest  that  you  consult  your  financial  advisor   before  taking  any 
    decision based on this presentation.

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