August 2008

A design for life

What was behind the decision for the MGM rebrand and move into the retirement income market?

It started at the end of February/early March of this year. Looking back over the history of the company we realised that MGM has always had a reputation for being a consumer champion and for meeting needs that are poorly met elsewhere. This goes back to how the company was initially founded when it provided insurance for sailors and continued right through to us pioneering the postcode annuity approach in the UK some years ago. We wanted to capitalise on this reputation as much as possible. We chose to specialise in the retirement area because we could see it was a developing market with lots of options available and competition was growing and so we chose to launch our Designs for Retirement business. It also helped that we had the expertise from developing the postcode annuity and wanted to develop that capability further by bringing an enhanced annuity product to the market.

There has been a lot of innovation in the UK retirement market over the past few years - what prompted you to enter the enhanced annuity market? Can you see MGM Advantage expanding into other areas?

The Advantage part of the brand is all about MGM's mutual status and we aim to look at the market and try to make life as easy as possible for the IFA. If you think of the whole annuity process it can take 6-12 weeks to process an application. Bearing in mind that the average annuity is still less than £30,000 and the adviser will receive 1-2% commission you can see they aren't making a lot of money from this process. IFAs can't make this business work on a profitable level and this is a genuine problem that the industry needs to address by squeezing the process down as much as possible. At MGM we have issued a 45 day quote guarantee on our enhanced annuity so hopefully there will be no need for the adviser to have to get a requote because they've had to wait so long to receive the appropriate information. We've also added the best rate guarantee so if the annuity rate goes up during the quote guarantee period then the client will get that better rate. Our online system is also being launched where the data is stored in the system so the adviser doesn't need to re-key in any information. When the adviser sends in the application we will chase the ceding scheme and again this takes time out of the process for the IFA.

Quotes are also generated instantly online as well so this gets rid of having to chase so much paperwork and receiving the wrong information. We also have the ability to use tele-interviewing to get medical information from customers and we ask extra questions in order to get more accurate information so the customer gets the best price.

Looking forward we will continue to look at ways to improve pensioner's standards of living. When people retire the first shock they get is when they realise how little money they have saved. The second shock they get is when they realise what their annuity income is going to be. If they were looking to try and inflation proof their savings then you will see another big shift down in terms of starting income. We need to find some alternatives within this asset backed space.

The other problem we see is the role of income drawdown. Drawdown is only good for a certain sector of the population as some people really can't afford the risk of their income going down. We need to make it easier for IFAs to talk to people with smaller retirement pots as I think this is a segment that is poorly served right now. We need to make processes cheaper and more efficient.

What do you perceive as being the biggest issues to come out of your research Retirement Nation: Britain's hopes and dreams for retirement?

We did a survey which demonstrated that no matter what your circumstances are you will be better off in retirement if you see an IFA. The survey covered both the at- and post-retirement market and we realised that it's never too late to get some help. Even if you haven't saved much then you can get an uplift in income with an enhanced annuity if you suffer from certain conditions. It could mean the difference between having to return to work and not. Our research showed you are twice as likely to downsize your home if you don't see an IFA. The survey showed that people are interested in doing different things in retirement. People have ambitions and we need to make it easier for the advisers to serve this market.

The primary issue that comes out of the research is that if people understood the terms and concepts surrounding retirement a bit more then they would be more likely to do something about it. The research demonstrated quite clearly that those who sought advice were always better off. People tend to make a lot of excuses to put off saving for their retirement - I can't afford to etc but we need to get the message across that you don't need to save a lot as you get the benefit of compounding. People don't realise that if you start saving early then you can actually get away with saving less. Financial education is at the heart of the issue as well as affordability. The benefits of saving into a pension need to be put out there and to say you can't afford to do it is an excuse.

What are your aims for MGM Advantage's first year in the UK marketplace?

MGM Advantage's first target is to really make an impact in the UK market place and be recognised as a credible competitor. We want to be seen as an innovator and be seen to be improving life for the IFA by offering real benefits. We want to make real efforts to increase take up of the open market option that way we increase the size of the overall retirement market and every- one wins that way. It's good for both the consumer and the provider but we need to work on getting the messages out there. MGM Advantage is genuinely passionate about making a difference. I think we have a good understanding of the needs of advisers and their consumers. We have real ambitions to change the market and create a seismic shift in getting people to access better retirement options. The more we listen the better we can comprehend people's needs and seek to deliver solutions to meet them.

Craig Fazzini-Jones
Director and Head of Designs for Retirement
MGM Advantage