State Duma on July 12 adopted the law on stepping up the requirements for the minimal charter capital of insurers from RUB 120 million* to RUB 300 million. Some insurers believe that after its enactment more than 25% of insurers will leave the market, wrote the portal ASN.
According to the experts and the Managing director on insurance ratings of the RAEX agency ("Expert RA" national rating agency) Aleksey YANIN, the share of big companies in the market will not change and there will be no significant effect on the market's development in general, due to domination of the big companies, and the number of players, who will probably leave the market after enactment of new requirements for charter capital, in terms of total GWP will account for not more than 2%. However, in terms of the total number of market players around 25-30% companies may leave, though, RAEX experts think, those companies will include just weak inactive players who do not carry on stable real business.
Senior Vice-president of VSK company, Aleksey CHUB, assumes that adoption of new law will lead to partial re-distribution of the market shares in favor of the big companies, thus their market shares will slightly increase, and such consolidation will mitigate competition, which is really important for the market. However, the law provides for the phased increase of charter capital until 2022 and companies with serious plans will have enough time to undertake necessary measures to comply with new requirements, added CHUB.
Representatives of such companies as AlphaStrakhovanie and URALSIB Insurance believe that new requirements will not influence substantially on the market, since the share of small insurers is not big, but some experts think new law to slow down the market and affect customers who prefer to work with certain regional insurers, because increasing the minimal amount of charter capital will limit competition first of all in regions.
*for approximative calculation EUR 1 = RUB 73.1345 (19.07.2018 by the Central Bank).
Hyperinflation에 시달리고 있는 베네즈웰라는 올해만 13,800%의 물가상승률을 기록했다. (베네즈웰라도 석유생산으로 96%이상의 수입을 올리는 남미국가중 하나인데, 올해 30년만에 석유생산량은 최저수준으로 급감했고, IMF는 경제가 붕괴된 상태라고 경고했다) 당장 현금으로 1만 bolivar를 주고 살수 있는 물건을 신용카드로 사려면 4만 bolivar를 주어야 살 수있다.
퇴직연금으로 2백만 bolivar를 받고 있는데 이돈의 가치는 암시장에서 미국의 60센트에 불과하고 시장에서 계란 15개를 살수 있는 푼돈일뿐이라고 68세 연금소득자인 Basilio Octo씨가 말한다.
은퇴자에게 필요한 것은 생존할 수 있는 식료품인데, 인플레이션을 헷지하지 못하는 연금수령은 정말 의미없다.
Some 200 seniors block traffic near the presidential palace demanding payment in full of their monthly retirement pension
Agence France-Presse
12:45:13am July 19, 2018
5:58:28am July 19, 2018
CRISIS. A man counts 1000-Bolivar-bills to buy groceries at the municipal market of Coche, a neighborhood of Caracas. Photo by Federico Parra/AFP
CRISIS. A man counts 1000-Bolivar-bills to buy groceries at the municipal market of Coche, a neighborhood of Caracas. Photo by Federico Parra/AFP
CARACAS, Venezuela – Perched on plastic lawn chairs and leaning on canes, scores of retirees protested Wednesday, July 18, to demand payment of their retirement benefits in crisis-hit Venezuela.
About 200 senior citizens blocked traffic on Urdaneta Avenue, a stone's throw from the presidential palace.
"They are not paying people's whole pension. We are just getting two million" bolivars, worth 60 US cents at black market rates," said Basilio Octo, 68.
That might get him 15 eggs but it's a quarter of his monthly income in a country with dizzying hyperinflation.
It could top 13,800 percent this year, the IMF says.
Currency notes are in very short supply; in some markets food and other basic goods can be purchased for 3 times less if the buyer pays cash.
So seniors are desperate to stretch their income by paying in cash.
Octo says he often has to get up at 3 am to go wait outside the bank and withdraw money.
"If we have to pay with a card, we are getting robbed," Octo explained. What could cost 10,000 bolivars in cash costs 40,000 with a card.
"Mr President (Nicolas Maduro), it's time for you to take responsibility," he said.
With the economy barely functional, food in short supply and hunger rampant, the seniors took turns chanting "WE WANT CASH."
On June 20, Maduro raised monthly pensions for seniors to 4.2 million bolivars. But a pound of meat costs 5 million.
"A banana and a plantain is what I can get with that money," grumbled Eulice Bolivar to AFP.
"The elderly are out protesting because they need their money. They need their food. There is too much hunger in Venezuela," she said. – Rappler.com
규제당국은 퇴직연금 적립금 운용관련 문제점을 개선을 위해서 좀더 많은 유용한 투자 정보가 가입자들에게 경쟁적으로 제공되어야 한다고 주장했다.
2018년7월18일 영국 규제당국(CMA; the Competition and Markets Authority)의 조사국장인 John Wotton은 영국 연금시장은 £1.6trn(약 2,364조원) 규모이며 과반수 이상의 연기금이 예년과 동일한 연기금수탁자(trustees)나 관리자(fiduciary manager)에 의해 관리되고 있다라고 연금시장 조사 결과를 발표했다. 따라서 경쟁이 치열하지 않은 상황이므로 연기금 가입자들이 충분한 정보를 얻고 있지 않다고 조사되었다.
이 조사는 영업행위감독원(FCA)이 작년 9월에 요청해서 이루어졌다.
규제당국은 또한 연기금 수탁자와 관리자가 좀더 경쟁적으로 더 많은 정보를 제공하여 연기금 가입자의 적립금을 키우도록 하여야 하며, 수수료가 좀 더 투명하게 공시되어야 한다고 제안하였다.
The CMA has today proposed a number of reforms to the investment consultancy and fiduciary management sector after identifying a range of competition concerns.
Investment consultants advise pension trustees, who oversee companies’ pension schemes, on how to invest their funds. Some pension schemes delegate investment decisions to fiduciary managers. These firms have influence over half of all UK households’ retirement savings and work with pension scheme assets worth at least £1.6 trillion. Good investment management helps ensure people receive the pension they expect upon retirement.
In September last year the Competition and Markets Authority (CMA) launched a market investigation into this sector, at the request of the Financial Conduct Authority (FCA), and the CMA’s provisional decision has today been published.
While pension schemes can choose from a range of different firms, the CMA has identified competition problems within both the investment consultancy and – to a greater degree – the fiduciary management markets. Its provisional findings include:
Around half of pension schemes choose the same provider for fiduciary management that they use for investment consultancy. Their current investment consultant can steer them to do this. This means companies which offer both services have an advantage over other firms, when it comes to getting this business from existing clients.
A number of pension trustees have low levels of engagement with providers in the sector when choosing their first fiduciary manager. Only a third of trustees ask firms to compete for their business through a tender process, meaning no competitive pressure is put on their existing investment consultant or fiduciary manager to offer the best terms or highest performance.
Pensions trustees often do not have sufficient information on the fees or quality of these services to be able to judge if they’re getting a good deal from their existing investment consultant or fiduciary manager, or if they could do better elsewhere.
As part of today’s report, the CMA has proposed a number of changes to these markets to deal with its concerns, including:
Pension trustees selecting their first fiduciary manager must run a competitive tender. Trustees who have already appointed a fiduciary manager without doing this must also put the role out to tender within five years. This would increase competition in the market and reduce the competitive advantage held by the incumbent investment consultant when it comes to getting the new business.
Fiduciary management firms must provide clearer information on fees and how they have performed for other clients, so that pension trustees have the information they need to make meaningful comparisons between different providers.
The CMA is also making recommendations for new guidance from The Pensions Regulator, which would provide trustees with more advice on how to choose and scrutinise providers. It is also proposing that the government broadens the FCA’s regulatory scope, to ensure greater oversight of the industry.
John Wotton, Chair of the CMA’s Investment Consultants Market Investigation, said:
We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members. They may lack the information they need to compare competing offers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.
This is an extremely important sector that influences how well millions of people’s pension savings are invested, and it’s therefore vital we take steps to make sure that competition is working properly. That’s why we’re proposing a number of important reforms to the sector, including requiring pension trustees to run a competitive tender when they choose a fiduciary manager and ensuring that trustees have much better information about fees and investment performance.
The CMA is inviting feedback on the provisional decision report by 24 August 2018. You can find out how to submit this, as well as further information on the market investigation case page. The statutory deadline for the CMA’s final report is 13 March 2019.
Notes to Editors
The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. It has functions under the Enterprise Act 2002, as amended by the Enterprise and Regulatory Reform Act 2013.
As set out in the FCA’s terms of reference, the investigation covers investment consultancy services, which provide advice to institutional investors (mainly pension funds) and employers on their pension schemes; and fiduciary management services, where the provider makes and implements decisions for the investor (for example, to select a fund in which to invest).
The CMA appointed an independent group of panel members to carry out the investigation and make decisions in this case, which is chaired by John Wotton, one of the CMA’s designated inquiry chairs. The other panel members are Lesley Ainsworth, Bob Spedding and Tim Tutton. All the appointees are chosen from the CMA’s expert independent panel members, who come from a variety of backgrounds, including economics, law, accountancy and business.
Enquiries should be directed to the CMA’s press team, press@cma.gov.uk, or 020 3738 6191.
For more information see the CMA’s homepage, or follow us on Twitter, Facebook, and LinkedIn. Sign up to our email alerts to receive updates on the markets cases.
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영국 연금감독원(TPR)은 2012년과 2015년 기한내 재정검증(valuation)을 실시하지 않은 DB형 퇴직연금제도 수탁자(trustee)인 Rentokil Initial Pension Trustee Limited에게 법 (Section 10 of the Pension Act 1995)에서 정한 벌금 2만5천파운드(약3천7백만원)를 부과했다.
DB형제도 수탁자는 DB연금의 재정검증을 실시하여야 하고 적립부족일 경우 재정안정화계획서(recovery plan)을 감독원에 제출하여야 한다.
그러나 동 수탁자는 사용자인 Initial Hospital Service가 분할하여 운영하던 제도를 하나로 합치는 과정에서 재정검증을 지체했다고 감독원에 보고하였으나, 감독원은 합병 등의 경우에도 재정검증이 지연되어서는 안된다고 수차례 조언한 바가 있었기에 위와같이 제재조치하였다.
감독원 수석 검사국장 Nicola Parish는
"재정검증은 가입자가 퇴직시 수령하게 될 퇴직급여를 제공할 능력을 갖추고 있다는 것을 점검하는 것이기에 가장 중요(key priority)한 수탁자의 업무이어서 감독원은 제날짜에 정기적으로 재정검증이 이루어지고 있는지 계속 모니터링해왔고, 이번 벌금부과는 감독원이 위법사항이 발생하면 조만간에 더 강력한 조치를 취할 것임을 보여주는 것이다"라고 말했다.
Trustee fined £25,000 for failing to submit pension scheme valuations
Ref: PN18-34 Wednesday 11 July 2018
A trustee has been fined £25,000 by The Pensions Regulator (TPR) for failing to complete two valuations for its defined benefit (DB) scheme.
Rentokil Initial Pension Trustee Limited failed to complete 2012 and 2015 valuations of the Initial Hospital Service Limited No.1 Pension Scheme by their respective deadlines (July 2013 and July 2016).
DB scheme trustees are required to complete valuations every three years and, if the scheme is in deficit, they must submit a recovery plan and a schedule of contributions to TPR.
As part of its clearer, quicker, tougher approach, since April 2017, TPR has issued nine Warning Notices for late valuations.
Nicola Parish, TPR’s Executive Director of Frontline Regulation, said:
“Agreeing a triennial valuation is a key priority for the trustee of a scheme and its sponsoring employer. It allows us to check the health of a scheme and its ability to provide members with their expected retirement benefits.
“We are monitoring valuation due dates more regularly and this fine shows we will take tough action sooner to put things right where breaches occur.”
TPR was informed the reason for the delay in completing both Initial Hospital Service valuations was a planned merger with a separate scheme run by sponsoring employer, Rentokil Initial Plc.
TPR repeatedly advised the trustee that the proposed merger was not a valid reason for failing to comply with the statutory requirements and they should progress with agreeing both valuations with the employer.
When the proposed merger failed to happen and the valuations had not been submitted by the end of 2017, TPR decided to take formal action.
TPR’s Determinations Panel (DP) upheld the recommendation that the trustee should be issued with a £25,000 fine under section 10 of the Pensions Act 1995 for its failure to take all reasonable steps to complete the valuations. The DP’s findings are set out in a Determination Notice (PDF, 180kb, 35 pages) published today.
The DP’s decision highlights a “flagrant disregard by the trustee of its obligation and the role of the regulator, putting members at risk”. The scheme has approximately 140 members.
The Trustee did not dispute the DP’s findings and the fine has been paid.
In addition, TPR also issued an Improvement Notice to the trustee and a Third Party Notice to the sponsoring employer in April under sections 13 and 14 of the Pensions Act 2004, which required both outstanding valuations to be submitted to TPR by the end of May. Both valuations have been received.
Nicola Parish commented: “The behaviours in this case were so severe that, not only did we issue Improvement Notices, we also recommended to the Determinations Panel that a fine should be imposed at a level that would be likely to improve behaviours in the future and be an effective deterrent for other trustees. We are pleased the Determinations Panel agreed with our approach.”
Editor's notes
We’re taking swifter action where valuations are not submitted within statutory timescales. We have issued nine Warning Notices (WN) for late valuations since April 2017, leading to:
two schemes complied and submitted valuations following receipt of WN
five schemes complied after being issued with Improvement Notices (trustee) and Third Party Notices (employer) requiring valuations to be submitted by a specific date or face a fine
one fine for a late valuation – £25,000 in the Rentokil Initial Pension Trustee Limited case
one case is ongoing
The £25,000 fine was imposed by the Determinations Panel (DP) under section 10 of the Pensions Act 1995 for a failure to obtain an actuarial valuation under section 224 of the Pensions Act 2004. The maximum fine in the band range that the DP considered appropriate in this case is £25,000 for a professional trustee.
Trustees cannot use scheme funds to pay fines.
The DP is a committee of TPR which operates separately from other parts of the organisation and in its decision making is independent of the case teams and the investigation process. The Panel has a separately appointed membership and separate legal support. The Panel considers all the evidence before it and provides each party with reasonable opportunity to present their case.
TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of TPR’s functions under Part 3 of the Pensions Act 2004 only).
프랑스, 미국 뿐만아니라 전세계적으로 DB제도와 부과방식의 공적연금이 축소되고 DC가 대세가 되고 있습니다.
따라서 연금제도는 흔히 말하는 1층 부과방식 공적연금, 2층 회사가 마련해주는 퇴직연금, 3층 개인이 스스로 마련하는 개인연금의 체계가 시들어버리고... 내가 얼마를 노후대비를 위해 투입할까와 그 투입한 자금을 어떻게 투자할 것인가라는 근본적인 질문을 개인들이 답해야하는 시대로 급변하고 있습니다.
...
지금 시장에서 TDF라고 불리는 생애주기 펀드가 그 대안일까요?
이 기고문의 집필자 Vincent Mihau는 현재 이 TDF는 유연하지도 안전하지도 않다고 단언하네요. 비록 주식과 채권의 비중을 원칙에 따라 자동적으로 배분하는 것이기에 그간의 투자자들으 편향들을 극복하는 장점은 있지만, 이 펀드는 은퇴자산을 안전하게 끌고가는 것에는 전혀 신경쓰지 않는다(nor explicitly intend to secure)는 거죠. 단순히 투자성향, 연령 따위에만 의존하면서 시장의 변화는 완전히 무시한다는 것입니다. 흔히 안전자산이라고 하는 채권과 MMF도 이자율이 변하기에 당연히 가격이 변하는 것이기에 투자자의 각기 다른 퇴직시점과 그 은퇴기간 동안에 약속한 안정적 소득흐름을 만들어주지는 못합니다.
그렇다면 종신연금이 대안일까요? 물론 종신연금은 은퇴기간 동안 고정된 수입을 주겠지만, 잘 아시다시피 수수료도 적지않고 일단 구입하면 해약불가능하기에 유연성이 낮고 그래서 수요가 높지 않습니다. 즉 종신연금은 TDF나 채권투자의 단점인 안전성을 극복할 수 있지만, 유연성은 해결이되지 않습니다.
결국 안전성과 유연성을 해결해 주는 대안은 목표연계투자(Goal-Based Investing)입니다.
Individuals need flexicurity in retirement solutions
Vincent Milhau
Uncertain perspectives for the first two pillars of pension systems
It is now commonly acknowledged that financing retirement is a concern for many individuals, as evidenced by numerous press articles describing the economic difficulties faced by pension systems, as well as calls from political decision-makers to undertake necessary but painful reforms to keep them sustainable. Those who have tried to estimate their replacement income – the income that they will receive from all sources after they retire – may have realised how difficult it is to get a precise number, given the uncertainty over the future rules governing public and private pension arrangements as well as the benefits that these plans will deliver. Uncertainty is magnified for young individuals, who have longer horizons. Older individuals in the transition from work life to retirement may come up with a more accurate forecast, but this exercise more often than not reveals that they will not be able to maintain their lifestyle after retirement, with retirement income levels typically much lower than their pre-retirement wage levels.
Unfunded pay-as-you-go systems, such as Social Security systems in the United States and France, are under strong pressure because of demographic imbalances and the roll-over of persistent public deficits. Public and private occupational pension plans can be relied upon as additional sources of replacement income in retirement, but they increasingly tend to be defined-contribution, as opposed to defined-benefit, arrangements. As a result, participants are left with little certainty about their future benefits. Overall, and in view of increasing longevity and the current underfunded status of many pension plans, the most likely scenario is a decrease in the benefits provided by the first and second pillars of the retirement system. In this context, it becomes critically important for individuals to call on the third pillar, and to make voluntary savings to supplement their public and occupational retirement income.
A household finance problem with unsatisfactory solutions
This situation raises two fundamental questions: how much should one save for retirement, and how should one invest such savings? These are by no means easy questions, particularly for individuals who are not familiar with basic investment concepts. To bypass the difficult question of how to invest, it is tempting to rely on pre-packaged investment products promoted by professional asset managers. Popular retirement products include simple balanced funds, which maintain a constant mix between asset classes, and also target date funds, which gradually shift from equities towards bonds and cash. Providing individuals with a one-stop access to diversified funds applying systematic rule-based allocation strategies is certainly better than leaving them follow their sentiment or market trends, and surrender to their behavioural biases. These products, however, suffer from a number of severe limitations. In particular, they neither secure, nor explicitly intend to secure, any minimum level of replacement income, and their investment strategy, which is based solely on an investor’s risk aversion and/or age, completely ignores changes in market conditions.
An extreme approach to the investment decision problem is to rule out any risk taking and to go for safe assets only. That said, while conventional wisdom holds that cash and sovereign bonds are the perfect examples of safe assets, it turns out that they are not safe in the retirement context. Indeed, a random portfolio of fixed-income or money market instruments will not deliver a stable stream of income starting at an individual’s retirement age and for his/her lifetime. Basic asset pricing theory allows us to calculate the price to pay in exchange for one dollar of replacement income every year for a set period of time (say 20 years) in retirement. This is calculated as a function of the investor’s retirement date and the current level of interest rates. Like a regular bond price, this price moves on a day-to-day basis due to the passage of time (as retirement date approaches) and because interest rates fluctuate. Neither cash nor a standard bond index tracks this price accurately, so an investor who chooses these vehicles would have no guarantee of having stable income in retirement and could experience a loss in the purchasing power of his/her savings in terms of replacement income.
Products that deliver a fixed level of replacement income do exist, namely in the form of annuities. However, such products are in low demand because of their lack of transparency and flexibility. For instance, an annuity purchase is usually irreversible, meaning that the annuitant cannot recover the annuitised capital if he/she must go through an event that generates large expenses (e.g. a serious health problem) or simply if he/she wants to take advantage of other investment opportunities during the accumulation phase. Security is also a double-edged sword. The level of income is fixed at the purchase date, so it cannot decrease, but nor will it increase, even if financial markets perform well or if the price of one dollar of replacement income decreases. In short, annuities offer the security that target date funds and fixed-income instruments lack, but they lack flexibility and have no upside potential.
The EDHEC-Princeton Goal-Based Investing Index Series
At EDHEC-Risk Institute, we believe that individuals should not have to choose between security and flexibility. Improved forms of target date funds, which rely on goal-based investment principles applied to the retirement problem, can be promoted by the asset management industry to help individuals and households secure minimum levels of replacement income while generating upside exposure in the context of liquid and reversible investment products. It is also our conviction that several recent and ongoing innovations make it possible to apply goal-based investing principles to a much broader population of investors than the few traditional clients who can afford customised mandates or private banking services. These innovations are the mass production of cost-efficient indices, the mass customisation of strategies and the mass distribution of investment advice and vehicles through digital tools like robo-advisors. Progress in financial engineering and digital technologies should be combined with a sound investment philosophy committed to the achievement of client goals. In a nutshell, this context creates an opportunity to provide genuine investment solutions, as opposed to off-the-shelf products, to individuals preparing for retirement.
As part of its focus on welfare-improving forms of investment solutions, EDHEC-Risk Institute conducted rigorous research on the foundations and the implementation of goal-based investing strategies in a research chair sponsored by Merrill Lynch over the course of 2014-15. Mass customisation issues were also studied in a 2017 piece of research focused on the retirement investment problem. A whole new step towards facilitating the implementation of these concepts was recently taken with the launch of the EDHEC-Princeton Goal-Based Investing Index Series in May 2018, in partnership with the ORFE Department of Princeton University. These indices provide a living illustration of the concepts introduced in previous articles and publications, and they have a dedicated page on EDHEC-Risk Institute new website, where their performance and composition are published.[1]
There are in fact two families of EDHEC-Princeton Goal-Based Investing Indices. The Goal Price Index series represents the price of one dollar of replacement income for various retirement dates. As some investors may be interested in withdrawing their capital at retirement, as opposed to receiving a stream of income, a specific version of the Goal Price Indices represents the price of one dollar of capital at retirement. These indices help investors answer the question: what is the purchasing power of my savings in terms of retirement income or wealth? This is a good first step towards establishing whether or not they are on track to achieve their objectives. The second family consists of the actual Goal-Based Investing Index series, which represents the performance of goal-based investing strategies designed to increase the purchasing power of invested contributions while securing a minimum level of retirement income or wealth. To achieve their dual objective, these strategies make use of a mixture of a performance-seeking portfolio and a retirement goal-hedging portfolio, which is a replicating portfolio for what has been labelled a “retirement bond”, which delivers a fixed level of income or wealth. Retirement bonds could be issued by sovereign states as an additional instrument to finance their deficit, as explained in a press article published in the French daily paper Le Monde. The investment policy is based on transparent rules, and combines features of the proven technique of dynamic portfolio insurance and of the popular target date funds, so that these strategies can be regarded as “risk-controlled target date funds”. The foundation paper of the indices describes the strategies and their building blocks in detail and shows how effectively this revisited form of target date funds achieves its goals compared to traditional target date funds.
The launch of the EDHEC-Princeton Goal-Based Investing Index series is a joint initiative between a research centre internationally recognised for the quality and the relevance of its work on risk and asset management and one of the most respected academic institutions in the world. Through their combined expertise, the partners hope that they can foster interest in the investment industry for the launch of new forms of retirement investment solutions, which will eventually contribute to making finance useful again for all, and particularly for individual investors.
The strategy helps older workers mimic a steady pension with their own retirement savings with three steps: Work longer; delay taking Social Security to maximize payments; and set a basic budget using an amount that you are required to withdraw from your retirement accounts anyway.
After years of working, many people face the challenge of converting their savings into a sustainable flow of income in retirement. Some researchers think they have a practical solution: Workers should take steps to “pensionize” their nest eggs.
The transition from saving to spending was once relatively simple, at least for retirees with traditional pensions offering predictable payments. But such plans are dwindling — in 2017, only 16 percent of Fortune 500 companies offered a defined benefit plan (traditional or hybrid) to new hires, down from 59 percent among the same employers in 1998, according to Willis Towers Watson — as employers have shifted to investment-based retirement accounts funded largely with worker savings.
While employers have taken steps to automate employee contributions to workplace plans, retirement experts say, few offer options for automatic payment plans in retirement. That means many retirees face a jigsaw puzzle of payments, requiring them to piece together an income from their workplace retirement stashes and individual retirement accounts to supplement Social Security.
One option is to use some of their savings to buy an annuity — an insurance contract that pays out income over time. But many of them are complex and larded with fees.
The complexity often pushes people to “wing it,” said Steve Vernon, a research scholar in the financial security division at Stanford University’s Center on Longevity. Retirees may then spend too much, jeopardizing their long-term financial security.
Vernon and two colleagues think they have a workable solution, developed in collaboration with the Society of Actuaries and outlined in a report in November: The “spend safely in retirement” strategy.
It focuses mainly on middle-income people — those who have saved perhaps $100,000 to as much as $1 million as they approach retirement — who generally lack traditional pensions, but have workplace 401(k)-type investment plans or IRAs. Wealthier people with professional planners, however, can also use it.
The strategy helps older workers mimic a steady pension with their own retirement savings with three steps: Work longer; delay taking Social Security to maximize payments, and set a basic budget using an amount that you are required to withdraw from your retirement accounts anyway, effectively “pensionizing” your savings.
Working longer — at least part time — can help cover basic living expenses and preserve savings. That in turn helps enable the second step, the postponement of Social Security benefits, ideally until age 70, to maximize those payments. For each year past your “normal” retirement age that you delay claiming Social Security benefits, your payments increase by 8 percent, until age 70 (the automatic increases stop at that point, although adjustments for inflation continue).
Taking benefits sooner, in contrast — say, at 62, the earliest age for taking benefits — significantly reduces your check.
Robert Siwa, 74, of Findlay, Ohio, said he filed for Social Security benefits at age 62, then worked off and on for a few years before fully retiring. He didn’t have a pension, but he had received a payout earlier from a company profit-sharing plan, which he invested in an IRA.
Then, in 2011, the annual premium on a life insurance policy he held skyrocketed at renewal, because of a health problem. He felt it was important to keep the policy, so he returned to work part time to pay for it. He works on call, driving cars between auto dealerships. “I really didn’t want to take it out of retirement savings,” he said. “It’s a balancing act.”
Cindy Hounsell, president of the nonprofit Women’s Institute for a Secure Retirement, said she often is asked what women should do if they lack retirement savings. “Keep working!” she said. “That’s your answer. Where else are you getting 8 percent?”
If 70 isn’t possible, working even an extra year or two can help.
The third step of the strategy (warning: retirement jargon ahead!) is to draw down a percentage of your retirement accounts each year as income, using the Internal Revenue Service’s “required minimum distribution” amount as a guideline. That’s the money retirees typically must withdraw from most types of retirement accounts each year, after age 70 1/2.
Called an “RMD,” the amount is calculated each year as a percentage of your retirement savings, based on an IRS formula that factors in your life expectancy. So if you have $400,000 in a retirement account at age 70, you must withdraw about $14,600, according to the IRS work sheet. That translates to about $1,217 a month.
The RMD wasn’t designed as a budgeting tool; rather it was created to make sure Uncle Sam collected taxes, after letting retirement savings grow tax deferred for years. But it can work as an income plan too, Vernon said.
The withdrawal rate progresses from about 3.65 percent to 4.2 percent of assets for people in their early 70s, according to the IRS chart, and continues to rise gradually over time. Although you don’t have to take a distribution before age 70 1/2, the approach can be used to calculate a safe withdrawal rate at younger ages — Vernon suggests 3.5 percent, to keep things simple.
If someone can’t work until age 70, Vernon says, it’s preferable to cut back on spending and dip into savings to meet basic needs for food, clothing and housing for a few years, in order to delay taking Social Security. That may mean less savings overall, but the trade off is higher “guaranteed” Social Security income.
Vernon and his co-authors, Wade Pfau and Joseph Tomlinson, analyzed about 300 variations of retirement income strategies, and found that the “safe spending” approach generally wrings the most out of available benefits for middle-income retirees, while avoiding excess complexity.
Vernon urges potential retirees to think of Social Security payments as their steady “paycheck,” to cover the basics, while the money from annual RMDs, which may fluctuate based on investment returns, represents a “bonus.”
The approach isn’t perfect. For one, it assumes that Social Security will continue as it exists today, although the program is subject to political risk as the population ages. (Vernon also cautions that it’s important for married couples to plan carefully when claiming Social Security, so the surviving spouse gets the highest amount possible should one of them die.)
Some retirees are not even aware of RMD rules, said David C. John, a senior strategic policy adviser at the AARP Public Policy Institute, despite hefty penalties for failing to take them (50 percent of the money not withdrawn), and may be uncomfortable calculating them.
John said he recently conducted a retirement seminar and some older people were in tears because they only learned they had missed a withdrawal when they received a tax bill reflecting the penalty.
In theory, he said, retirement plan sponsors alert account holders about required withdrawals, but it may not always happen.
Some financial planners say they doubt that basing a budget on Social Security plus an RMD will support the lifestyle many people hope for in retirement, unless they have saved larger amounts of cash. “If the RMD isn’t enough, you still have to cut expenses,” said Jennipher Lommen, a financial planner in Santa Cruz, California.
Retirees are dubious. “It wouldn’t be enough,” said Nancy Hall, 71, of Princeton, New Jersey, who retired as a researcher with the New Jersey State Health Department 15 years ago. (Her husband is also retired.)
Hall said she was fortunate to have a government pension, but worried that it won’t stretch as far as planned because the state had eliminated cost of living increases.
“We thought we were on easy street,” she said with a laugh. She claimed Social Security at 64, but wonders if she should have waited.
Vernon said retirees should consider the “spending safely” proposal a baseline, and modify it to fit their circumstances. Meanwhile, he is acting on his own proposal. Retired for a decade from his full-time career as a consulting actuary, he’s now 64 and “working just enough” in his encore career as a researcher, he said, to delay his Social Security benefits — hopefully until age 70.
Government set to 'examine' pensions tax relief system
"Once they take the lid off pension tax relief, who knows what conclusions they will come to?" - NOW: Pensions Adrian Boulding
Hannah Godfrey
The government is set to take a close look at the current pension tax relief system, Baroness Buscombe revealed in a speech to the House of Lords last night.
The parliamentary under-secretary of state for the Department for Work and Pensions said the government could overhaul the system it if felt it was beneficial to do so.
"Alongside further work on the automatic-enrolment changes outlined in the review, the government will examine the processes for payment of pensions tax relief for individuals to explore the current difference in treatment to ensure we can make the most of any new opportunities that emerge, balancing simplicity, fairness and practicality while engaging with stakeholders to seek their views," she said.
2018-07-20
![Slide 2 of 12: Actuaries are responsible for assessing and minimizing financial risk. They often work in the insurance industry. Actuaries need to pass a series of exams to earn professional certification. The median salary for this occupation was $101,560 in 2017, per the most recent data from the BLS. The number of actuary jobs is predicted to grow 22 percent from 2016 to 2026, according to the BLS.]({"default":{"load":"wait","src":"//img-s-msn-com.akamaized.net/tenant/amp/entityid/AAzbAVM.img?h=749&w=1438&m=6&q=60&u=t&o=f&l=f"},"dpi":1.8,"size3column":{"load":"wait","src":"//img-s-msn-com.akamaized.net/tenant/amp/entityid/AAzbAVM.img?h=749&w=1123&m=6&q=60&u=t&o=f&l=f"},"size2column":{"load":"wait","src":"//img-s-msn-com.akamaized.net/tenant/amp/entityid/AAzbAVM.img?h=749&w=1123&m=6&q=60&u=t&o=f&l=f"}} "Actuaries are responsible for assessing and minimizing financial risk. They often work in the insura... - (Getty Images)")
