What does PensionMetrics do?

• Optimal lifecycle financial planning
  
1. maximises expected lifetime welfare using our unique standard of living fancharts
   
• Integrated treatment of accumulation and decumulation phases
  
1. requires modelling of future annuity values under interest rate and longevity risks
   
• Helps determines ‘optimal’ decisions regarding:
  
1. contributions, investment strategy, decumulation strategy and age of retirement
   
• Covers a wide range of alternative contribution, investment and decumulation strategies
  
• Projections take account of quantifiable uncertainty: 
  
1. using fan charts or bar charts showing worst, expected and best case scenarios
2. taking account of economic growth, investment, interest rate, inflation and longevity risks
3. can provide projected life expectancies, as required in the new guidance requirements
• Designed to be an explicit ‘nudge’ that overcomes the behavioural barriers that prevent individuals making optimal decisions
• Can be adapted to become a retirement planning tool or a wealth management tool (including inheritance planning)
• Can take account of all relevant features relating to a potential client: age, gender, occupation, marital status, existing assets and debts, bequest intentions, state pension and benefits, taxes, charges etc. 
• Can take account of all relevant decisions: how much to save, when to start saving, how to invest the pension fund, possible workbreaks (e.g., maternity/paternity leave), possible unemployment, possible breaks in contributions, equity release, the impact of any insurance policies and, in decumulation, different forms of annuitisation or drawdown or mixes of the two (including guarantees)
• Can be used for stochastic scenario analysis or stress testing
• Can be used to tailor advice and decisions to a client’s specific circumstances, including their attitude to risk
• We can provide risk profiling and risk capacity questionnaires for both the accumulation and decumulation through our sister company A2Risk (www.A2Risk.com)
• Users can use PensionMetrics’ default parameters or input their own

Optimal decisions

• Optimal contributions
  
• Optimal investment strategy
  
• Optimal retirement age (including gradual retirement)
• Optimal decumulation strategy via: 
  
1. Fixed annuities
2. Flexible pay-out annuities
3. Index-linked (i.e., real) annuities
4. Investment-linked annuities
5. Enhanced annuities
6. Drawdown
7. Mixture of annuities and drawdown

Key points:

• It is a scientifically grounded model:
  
1. the product of a long research programme going back to late 1990s
2. based on best science and calibrated (as appropriate) on real data and expert judgement
• Our model covers ALL relevant risk factors: 
  
1. equity, fixed-interest, inflation, economic growth, salary  AND longevity risk.
   
• Our model gives OPTIMAL solutions: 
  
1. optimal investment strategy, optimal decumulation strategy, optimal contribution rate, optimal retirement
   
• Our model can be applied to any user:
  
1. expert designer, corporate pension scheme or individual
2. but is built around the requirements of the plan member
• Our model takes account of behavioural biases 
  
1. but without overburdening plan member

How does PensionMetrics compare with other models?

• They tend to be wealth management models with little thought on how to optimally run down assets in retirement
  
• Many of them still use deterministic scenarios (a MAJOR weakness). By contrast, PensionMetrics is fully stochastic
  
• They do not have the ‘feel’ of a proper pension design model: 
  
1. no salary profiles
2. no analysis of alternative accumulation and decumulation strategies
3. in particular, there is no analysis of longevity risk (this is another MAJOR weakness especially in the light of the new pension flexibilities)
• Typically used to direct the contributions into the model seller’s own standard wealth accumulation funds
  
1. not useful if you already have a different platform
   
• Typically want only a relationship with plan sponsor:
  
1. not interested in the plan member
2. so not interested in the member’s concerns or behavioural traits