The Willis Towers Watson 2018 Pensions & Savings …...TATA STEEL UK - Negotiations with many different parties - Public consultation on the BSPS (covered a number of options, including

The Willis Towers Watson 2018 Pensions & Savings ConferenceFour Seasons, LondonWednesday, 23 May 2018

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Agenda

2

12:30 13:30 Delegate registration and lunch Merchants Hall/foyer

13:30 13:35 Welcome and introduction Emma Palfreyman, Willis Towers Watson UN Ballroom

13:35 14:00 Industry outlook Dave Roberts, Willis Towers Watson UN Ballroom

14:00 14:45 Panel discussion: Managing complex pension schemes

Allan Johnston, Chair of Trustees, British SteelChris Martin, ITS, Chair of Trustees, BHS Pension Scheme & Independent Trustee, CarillionPension SchemesRory Murphy, Chair of Trustees, Merchant Navy Officers Pension Fund (MNOPF) Fiona Frobisher, Head of Policy, The Pensions Regulator Debbie Webb, Senior Director, Willis Towers WatsonEmma Palfreyman (Chair)

UN Ballroom

14:45 15:30 Breakout session one

Option A A trustee view on changing course unexpectedly

Allan Johnston, Chair of Trustees, British SteelGareth Oxtoby, Willis Towers WatsonHazel Kendrick, Willis Towers Watson

UN Ballroom

Option B DB Consolidation What will the future be?

Gareth Strange, Willis Towers WatsonDave Roberts, Willis Towers Watson

Merchants Hall

SESSION TITLE SPEAKERS ROOM


3

15:30 16:00 Tea/coffee break and networking Merchants Hall/foyer

16:00 16:45 Breakout session two

Option A

Dealing with DB deficits Rory Murphy, Chair of Trustees, (MNOPF) Kim Farnum, Willis Towers WatsonPieter Steyn, Willis Towers Watson

UN Ballroom

Option BTo transfer or not to transfer: that is the question!

Helen Perrin, Willis Towers Watson Ant Bird, Willis Towers Watson

Merchants Hall

16:50 17:35 Keynote session Roger Bootle, Former HSBC Chief Economist and winner of the Wolfson Prize UN Ballroom

17:35 17:40 Closing remarks Emma Palfreyman UN Ballroom

17:40 20:00 Drinks and canapés Merchants Hall/foyer

Agenda

SESSION TITLE SPEAKERS ROOM


4

Breakout session one

Choose between:

UN Ballroom

Option AA trustee perspective on

changing course unexpectedly

Merchant Hall

Option BDB Consolidation What

will the future be?


5

Breakout session two

Choose between:

UN Ballroom Merchant Hall

Option ADealing with DB deficits

Option BTo transfer or not to transfer: that is the

question

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Industry outlook

Dave Roberts


Speaker

7

Dave RobertsDirector, Retirement, Willis Towers Watson

willistowerswatson.com© 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Defined Benefit consultationsGreen paper and White paper

8


3%

28%

69%

7%

39%

54%

2-in-3 DB schemes will be closed to future accruals by 2020

9

Today Future

Note: observations were weighted to allow one single response per schemeSource: 2018 WTW UK Defined Benefit Survey

Closed to future accrual

Closed to new entrants but open to accrual

Open

Open


Which are the most important issues that you see impacting your pension scheme over the next 3 years?

Most important issues facing DB schemes today

10

Note: Up to three answers could be chosen. The word cloud is weighted based on the percentage of each options. Source: 2018 WTW UK Defined Benefit Survey


Trustees highlight importance of sponsor covenant and de-riskingPension managers are more focussed on funding, transfer activity and TPR

11

Source: 2018 WTW UK Defined Benefit Survey

Trustee Pension manager

1 Long term journey planning Long term journey planning 1

2 Sponsor Covenant Negotiation of a funding agreement 2

3 Buy-in/Buy out High level of transfer activity 3

4 Negotiation of a funding agreement Buy-in/Buy out 4

5 Short-term volatility Dealing with the Pensions Regulator 5

6 High level of transfer activity Sponsor Covenant 6

7 Quality of your scheme data Member options 7

8 Member options Short-term volatility 8

9 Trustee fiduciary duties Quality of your scheme data 9

10 Dealing with the Pensions Regulator Trustee fiduciary duties 10

Sponsor Covenant

Sponsor CovenantHigh level of transfer activity

High level of transfer activity

Dealing with the Pensions Regulator

Dealing with the Pensions Regulator


Which are the most important issues that you see impacting your pension scheme over the next 3 years?

Most important issues facing DB schemes today

12

Long-term journey planning


Long-term journey planning

13

Increase

16%

17%Decrease

In development In place No

64%In place

In development

22% 14%

No

Increase

1%

Trust-basedIn 2018 Change since 2013


Long-term strategy for DB scheme

14

39%Buy-out

31%Minimal

reliance on sponsor 27%

Managing ongoing

investment risk

3%

Today

55%Minimal reliance on

sponsor

30%Managing ongoing

investment risk

4%

11%Buy-out

In 2013


Consolidation

15

Commercial consolidator

DB Master Trust

Suite of shared services

Individual shared services

Removing the sponsor

Removing the trustee

Outsourcing governance

Outsourcing individualservices


Collective defined contribution pensions

16

2015 20182013

YES

2015

NO

2018

We are minded to assist

What do Pensions Ministers think


Stronger powers for the Pensions Regulator

17

It is a positive step for TPR to be able to agreements fairly and effectively

68% 31%

The extended powers of TPR will help to produce better outcomes for DB members

59%

This is likely to make a big difference to future funding settlements for our scheme

15%



Dividends

18

Sustainable growth of an

employer

Protecting members benefits


IndexationStatutory override: RPI to CPI

19

and are therefore ruling out provision of a power for employers or trustees to change scheme rules so that schemes can apply inflation increases using


Timing: When might we see changes?

20

Some now

2018Consult on consolidator funds

2018-19Consult on TPR-lead issues

2019-20 ??Legislation(2020/21)

BREX T


Panel discussion: Managing complex pension schemes

Emma Palfreyman (Chair)Allan Johnston; Chris Martin; Rory Murphy; Fiona Frobisher; Debbie Webb


22

Breakout session one

Choose between:

UN Ballroom

Option AA trustee perspective on

changing course unexpectedly

Merchant Hall

Option BDB Consolidation What

will the future be?


Break out session one AChanging course unexpectedly a trustee viewCase study: British Steel Pension Scheme

23 May 2018

Allan Johnston, Gareth Oxtoby and Hazel Kendrick


Allan JohnstonTrustee Chair, British Steel Pension Scheme

Speakers

24

Gareth OxtobyScheme Actuary, Willis Towers Watson

Hazel KendrickProject Management, Willis Towers Watson


The background

25

- An industry in difficulty- March 2016 turnaround plan for the UK business rejected with the entire UK business being put up for sale

THE OUTCOME

TATA STEEL UK

- Negotiations with many different parties- Public consultation on the BSPS (covered a number of options, including changes to its rules and transfers

without member consent)- Related consultations on PPF levies for schemes without a substantive sponsor and changing PPF

compensation in relation to bridging pensions

WORKING TOWARDS A SOLUTION

BRITISH STEEL PENSION SCHEME- March 2014 funding valuation showed the Scheme to be reasonably funded

- Market movements over the period to 31 March 2016 negative larger deficit (and much larger if covenant support downgraded)

- Regulated Apportionment Arrangement- TSUK sponsorship for a new scheme- Individual member elections to transfer (or default into the PPF)


Launching a new Scheme and preparing for PPF entryComponent parts of this unprecedented project

Over 40 separate stakeholder organisations involvedSmart data extraction from 14m images£10s of millions of risk removed through GMP reconciliation identifying HMRC only membersPension tranches created for around 55,000 membersKey headlines

c. 13,700 chose the PPF c. 24,800 defaulted into the PPFWith the remaining members opting for the new BSPS

26

80%+ENGAGEMENT

Over 80,000PEOPLE OPTED TO MOVE TO THE NEW

SCHEME

Over £2.5bnpaid in respect of Transfer Values in

under a year


14.5 %

40

Member support

27

Other communicationsnewsletters, dedicated website with c.140,000 page views/over 35,000 users, weekly Q&As, reminder campaign, videos, press ads and confirmation communications

Option packs issued

Over 13,000 attendees

member meetings across 11 locations in just 6 weeks

Two call centresPensionersDeferreds

over 100 call handlers handled

c. 50,000 calls

30 variations of the options pack

120,000

Average call centre engagement


Lessons learned

28

Strategic

Value of the contingent support

Investment strategy

PR and media support from the outset

Proving the inevitability of insolvency may not be easy

Are there times to speak without advisors, in an ordinary way?

Sheer determined can-do leadership

Be prepared to be a tough negotiator!

Operational

Assess, and if you can, address, key-person risk

Resourcing, contingency planning and talent retention

Utilise your advisers and their resources

Robust stakeholder management educating others (possibly large groups)

Communications are key

Membership

Uncertainly will drive up call volumes prepare for this if you can

How will you support vulnerable members? (e.g. over 80s, recently bereaved, dementia)

Keep member option terms under review and think carefully about how you communicate them

If you can, offer financial advice?

Your planning should anticipate very high member engagement

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Q&A

29© 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.


Break out session one B

DB Consolidation What will the future be?

23 May 2018

Gareth Strange and Dave Roberts


Gareth StrangeSenior Director, Retirement

Speakers

31

Dave RobertsDirector, Retirement


Agenda

32

Introduction

High level messages from the White Paper

Current levels of consolidation

Consolidation of advisors

DB Mastertrust


Where are you on your journey?

Questions and Answers


High level messages from White Paper

33

Sponsor consolidation

Trustee ConsolidationDefined benefit

Master Trust

Adviser ConsolidationSuite of shared services

Traditional StructureIndividual shared services


Government encouraging consolidation

Lower costs per member, more

effective investment, improved governance


(all the media

Existing options can deliver

many of same efficiencies &

savings

Are the existing options currently

under used?

The consolidation journey what is right for your scheme?


Current levels of consolidationWe have already seen DB consolidation in the market through various different vehicles

34

Only 7% of DB schemes are open to new entrants

Over 240,000 members are now in the PPF

60% of DB assets are held by the largest 3% of schemes

Less than 1% of schemes have in-house pensions administration c14% of schemes use

fiduciary management

80% of DB schemes have fewer than 1,000 members

Over 1.2m of pensions have been secured by bulk annuities


The role of a Trustee

35

Sample: TrusteesSource: 2018 WTW UK Defined Benefit Survey

How strongly do you disagree or agree with the following statements about your role as a trustee?

es

I now spend more time on trustee activities

My role as a trustee has become more difficult

Monitoring managers and advisors has become more complex

Member trustees should be remunerated for their time

It is becoming harder to find members to act as trustees

79%

71%

57%

55%

49%

Almost three quarters report their role has

become more difficult

Half of trustees report it is becoming harder

to find members to act as trustees


Outsourcing individual servicesShared Administration services

36

Background

Most widely used consolidation option

Moving to a specialist firm

Market currently in a state of flux

Pros

Adaptability to changing landscape

Access to technical expertise and technology

Economies of scale

Better service to members

Risk mitigation

Cons

Loss of control

Large initial commitment (time and cost)

Impact on internal staff


Outsourcing individual servicesAsset pooling/fiduciary management

37

Background

Brings together the assets of multiple pension

Growing rapidly over the last ten years

Fiduciary management outsources manager selection and governance to a specialist

Pros

Reduction in manager fees

Access to wider pool of assets

Reduced governance for Trustee Board

Creates a focus on strategic decisions

Access market opportunities

Cons

Upfront transaction costs

Potential for conflicts of interest

Higher cost if currently doing minimum

Loss control of manager selection


A significant degree of outsourcing is expected over the next 5 yearsHow likely do you think it is that we will see any of the following emerge as significant trends in the UK in the next 5 years?

38


es

Schemes outsourcing more of their functions

(administration, secretarial, etc.)

Schemes delegating investment decisions to a

fiduciary manager

18%

35%

35%

36%40%

26%

35%

38%

19%

17%

36%

33%

Trustee

Corporate

Trustee

CorporateLikely

Very or extremely likely

LikelyVery or extremely likely


Avoid duplication of work

Less time spend manging advisors

in breed

Existing relationship

removal

Risk of overreliance

Consolidation of advisers

39

Cost savings

Removes advisor v advisor challenge

Enhanced governance framework

What are the pros and cons of consolidating advisers?


DB Mastertrust

40

The additional consolidation step in a DB Mastertrust is consolidation of multiple pension schemes into one trustee structure creating greater governance efficiencies and reduce cost

Do I need to professionalise my Trustee board?Can a DB Mastertrust reduce my costs?Will I have less control over pension strategy?

Corporate Perspective

Will a DB Mastertrust give better outcomes for members?Is the existing trustee board giving high quality governance?What governance levels are there in the DB mastertrust?

Trustee Perspective



41

Allows the sponsoring employer to separate from its pension scheme by monetisation of its covenant

What are the new consolidation vehicles mentioned in the White Paper?

Making a real impact and Source: PLSA Taskforce for Consolidation, March 2017

-out- liabilities are removed from the sponsor but as framework is outside the insurance regime it would not be subject to the same high costs, but neither would members have the same near-guarantees afforded by insurance companies

The viability of any commercial consolidator is likely to depend on pricing, which will be heavily influenced by any minimum level of benefit security required under legislation

Duty placed on the trustees of the original scheme to satisfy themselves that the funding level of, and security in, the consolidator effectively covers the on-going support otherwise expected from the original sponsoring employer.

Transfer into a commercial consolidator will not be attractive to all schemes


Commercial consolidatorWhat do we still need to know?

42

Regulatory Framework

Entry criteria

On-going relationship

with the sponsor

long term funding objective and investment

strategy

Capital buffer

Profit extraction

Interaction with PPF

Benefit simplification


Where are you on the journey?What questions should you be asking?

In-house functions and

separate advisors

3rd party administration

Asset pooling/ fiduciary

management

Consolidation of advisers

DB Mastertrust

Commercial consolidator?

Is my current governance structure fit for purpose?

Are there any existing consolidation options which we should be

considering?

Might a DB Mastertrust or commercial consolidator be right for my scheme?


Q&A



Break out session two A

Dealing with DB deficits

Kim Farnum, Pieter Steyn and Rory Murphy


Speakers

46

Kim FarnumDirector, Retirement

Pieter SteynHead of Delegated Investment Services UK

Rory MurphyChair of Trustees, Ensign Retirement Plan and Merchant Navy Officers Pension Fund


Agenda

47

Introduction

The problem

Possible solutions

MNOPF case study



es

DB scheme deficits have grown materially in the last decade, despite significant contributions paid to redress the shortfall.Despite reasonable asset performance, particularly over 2016/17, the low yield environment has meant that liability growth continued to outpace asset growth.

48

Investor

-200

0

200

400

600

800

1000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Growth in DB deficits

S179 deficit Full buyout deficitSource: Historical funding figures measured annually as at 31 March, PPF Purple Book 2017


Manage liabilities

Invest efficiently

Adequate contributions

Dealing with DB deficits

49

Good governance


Good governance

50

Know your end game

Articulate the mission and strategic objectives of the scheme, and review these regularlyManage the scheme according to its missionEstablish a journey plan (for closed schemes), monitor it and respond to developments

Manage trustee agendas to tackle key prioritiesConsider dashboard of key risks and issuesEmploy an executive function or dedicated resources for implementation of actions / decisions

Healthy, open dialogue with sponsors, and not just at valuationsAdviser collaboration

Use your time wisely

Agility

Communicate and collaborate


Managing liabilities

51

Consider facilitating member option exercises

Early retirement exercise

Retirement transfer options(RTO)

Pension Increase

Exchange (PIE)

Transfer exercises

(TV)

Trivial commutation / small pot lump

sumLongevity hedging

Buy-ins

No new solutions here, but increased engagement in member option exercises in recent years:19 times amount transferred in January 2018 compared with 4-5 years agoRTO take-up on average 20-30%, with some schemes experiencing significantly higher take-upPIE take-up on average 25-45%


Efficient investing

52

Returns from innovation

Fiduciary management

can be a useful tool

Careful risk management

Lower cost through aggregation

Timely decision-making

Protection against

downside risks

Balance between

insured and non-insured

solutions


Fiduciary management - economies of scale and scope

53

Investment managers

100m

1bn

3bn

100bn

Individual schemes Aggregated assets under Delegated CIO

Economies of scale

Lower investment manager fees

Decreasing further with greater scale

Similar principle applies to expenses

Economies of scope

Professional portfolio management process

Professional execution process

Professional resource

Asset liability mgmt.

Strategic Asset Allocation

Training Liability driven investment

Selections Monitoring

Strategic asset allocation

Manager selection

Liability driven investment

Monitoring


Contributions

54

CovenantUnderstand sponsor covenant and contribution affordability

Use innovative contribution mechanisms eg contingent contributions, ABF structures

Incentivise early payment of contributions

Win/win

Collection


MNOPF case studyStrategic outcomes

55

MNOPF milestones 2012 - 20172012 MNOPF Old Section achieves funding objectives and completes full buy-in

2014 Full buy-out of MNOPF Old Section completed

2014 Longevity hedge completed for pensioner liabilities, start thinking about future maritime pension provision

2015 Actuarial valuation identifies no new deficit - Journey Plan on track. Vision Statement launched - includes wind up of MNOPF and securing long term sustainability of Money Purchase Section. Ensign Retirement Plan launched

2016 Closes to DB future accrual with enhanced DC contributions

2017 Consolidation of Money Purchase Section and Ensign Retirement Plan

Best DB Investment Strategy

Professional Pensions Awards

Best Investment Strategy

Engaged Investor Awards

Best Long-Term Investment

Strategy

Investment & Pensions in Europe

Awards

DB Scheme of the Year

Pensions Age

Best Investment Strategy

European Pensions Awards

Best use of Diversification

Investment & Pensions in

Europe Awards

Best Multi-Employer Scheme

Investment & Pensions in Europe

Awards

Professor Gordon L. Clark, Oxford University, Director of the Smith School of Enterprise and the Environment


MNOPF case study

56

Industry-wide scheme covering 350+ employers

Clearly articulated and regularly reviewed mission statement and strategic objectives, including:

Aim to be 103% funded on a gilts basis by 2025Insure all DB Section liabilities

Journey Plan guides all decisions across all parties one strategic vision

Use of trustee subcommittees alongside Executive for strategic work

Deficit contribution collection, and incentives for early payment

Extensive covenant reviews

Governance

es

60%

65%

70%

75%

80%

85%

90%

95%

100%

12 14 16 18 20 22 24

Journey Plan Funding level progression


MNOPF case study

Trustee(Strategy)

Owns the Journey PlanSets funding objectivesSets return targets and DCIO mandateAgrees funding level triggersDecides on buy-ins and longevity hedging

DCIO(Implementation)

Investment decision making and asset allocationDynamic risk and portfolio managementSelects and monitors investment managers Complies with regulationMonitors triggersReports against Journey Plan

Trustee(Oversight)

Oversees DCIO activity and performanceUses Independent Investment AdviserReviews investment fees against budgetReceives regular updates from Management Committee

Use of fiduciary management


MNOPF case studyInvestment outcomes

58

5 years pa 3 years pa 1 year pa

Fund return (net) 9.6% 8.1% 4.7%

Liability return 6.9% 6.3% 2.7%

Relative return +2.7% +1.8% +2.1%

Risk 2.6% 2.1% 1.1%

All returns to 31 December 2017Source: Willis Towers Watson; MNOPF

Returns relative to liabilities

+2.7% pa

Investment costs

35%

Investment risk

75%

Saving shipping industry c£500m


MNOPF case study

59

Average pension schemeBased on the average asset allocation for the average UK DB pension fund specified in the Purple Book (c.6000 funds), we have estimated the change in asset value for the average scheme using widely used indices in the respective asset classes. We have allowed for 50% of the non-domestic equity allocation being hedged back to GBP Sterling.

Liability measureThe estimated funding progress of the average scheme has been derived based on the liability characteristics contained in the Purple Book to estimate a gilt based funding level of the average scheme through time. An allowance for deficit contributions has been made as set out in the Purple Book, assuming a flat payment profile through time. Sensitivity to interest rate changes as noted in the Purple Book have been allowed for in the liability estimates and the asset estimates produced.

Funding level comparison versus average UK DB Pension Scheme

es


MNOPF Case StudyThe future

60

Trustee goal - to secure the DB section benefits and secure the long term sustainability of the MP Section

With plans on track to meet the DB objectives, pension provision for the next generation is critical.

High qualityLow management feesTransferrableCost effectiveEasy to useOpen to all

ensignpensions.com


Q&A



Breakout Session B

To transfer or not to transfer: that is the question!London

23 May 2018Helen Perrin and Ant Bird


Helen PerrinDirector, Financial Planning UK, Willis Towers Watson

Speakers

63

Ant BirdDirector, Communications & Change Management, Willis Towers Watson


Agenda

64

Introduction

Key points

DB transfer activity

The member perspective

Your role as trustee/employer

The longer term considerations



DB transfer activity since April 2013 (WTW clients)

65

Activity in DB to DC transfers for members aged 55 or older from a representative sample of Willis Towers Watson clients


DB Transfers (in numbers)

66

£30.9bn of transfersin 2017

(£10bn in 2016)

Up to 20% of liabilities

transferred out in 2017

varies by scheme

Est. 100,000 transfers in the2017/18 tax year

£18m

Choices made by those who transferred as part of an RTO


The member perspective what is the motivation for transferring?

67

employer will be money on to my

level of income more while I can


DOING NOTHING IS NOT A NO RISK STRATEGY


Questions

Do you believe Trustees and/or employers have a duty to make members aware of the transfer option at retirement?

69


Preparing to retire At retirement

Technology underpin: Administrator and education through tools & videos

Support optionsEducationIllustrative transfer valuesInteractive toolsFace to face guidance via workshops

What benefits do I have? What are my options?What actions do I need to take now?How should I invest my DC pensions to reflect my intentions?Can I contribute more?

Am I making appropriate decisions?How do I implement my choices?What future decisions do I need to make?

Support optionsRetirement statement EducationHelplineTools/technologyPersonalised advicePreferred income drawdown provider

AimEnsure members make informed retirement decisions

71 74 77 80 83 86 89 90+Age 53 56 59 62 64 65 68

How should I invest my money?What income can I take?What are the tax implications?Should I buy an annuity at some point?

In retirement

Platform for supportOngoing advice available from a facilitated advisor panelDefault investment strategies from an income drawdown providerTools available from income drawdown provider/on pension website

AimMember continues to make informed decisions about their investments/ retirement income throughout retirement.

AimAllow time for members to plan for their retirement Encourage early consideration of all options


Questions

Should transfer values be included as standard in at retirement packs?

Should Trustees/employers provide additional support (education) to members to help them understand the risks and benefits of the transfer option?

a) Pre-retirement (55+)

b) At retirement

Do you see a benefit in having an adviser panel for use by members at retirement?

Do you think employer/Trustees should pay for individual advice at retirement?

71


72

Take your benefitsfrom the DB Plan

pension

Transfer out to DC and choose a regular

income (not from the DB Plan)

Transfer out to DC and choose to withdraw

savings as and when I need to

Transfer out to DC and choose a single cash

lump sum

Main source of my retirement income

Part of my retirement income

Predictability

Flexibility

Security

Opportunity

Short-term income

Long-term income

Short life expectancy

Long life expectancy


Engaging through learnings styles Watch, Play, Read

73

WATCH: Visual LearnersVisually stimulated through

videos, seminars, live demonstrations and

others performing tasks.

PLAY: Kinaesthetic LearnersTactile and hands-on, learn through doing. Use modellers, calculators and on-the-job training.

READ: Visual LearnersMemorising and absorbing information through reading and/or writing. Recall and application thereafter.

* Brain segment sizes are not proportional

TALK: Discussion LearnersFace-to-face discussion, debate and

talking, either one-on-one or in a group scenario, sharing ideas verbally.


Engage across devices

74


WATCH examples

75


PLAY example

76


READ example

77


Things to try / consider

GuidanceDoing nothing is not a no risk option at least inform members of optionsProvide a transfer value and information earlier, age 55, rather than 6 months from retirementTalk to members about what is important to them, not productsConsider different learning styles and engage with members across a range of media and channels (online & mobile)

AdviceFacilitate advice using an adviser panelAnd/or paid or part pay for advice for members

78


Q&A



Keynote session

Roger Bootle

By Roger Bootle

The Financial Outlook

1. Agenda

The inflation outlook.

Prospects for interest rates and bond yields.

The QE factor.

The outlook for equities.

2. UK Inflation (%, 10 Year Averages, 1300-2018)

3. US Inflation (%, 1820-2018)

1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020

4. Key points about inflationLessons from history.

Disinflationary forces.

QE not the problem.

What do the authorities want?

The danger of a mistake.

5. UK Official Bank Rate (%, 1694-2018)

6. UK Official Bank Rate (%, 1945-2018)

024681012141618

02468

1012141618

1945 1955 1965 1975 1985 1995 2005 2015

7. US Official Interest Rate (%, 1914-2018)

8. Key Policy Rates (%, 2015-2020f)

-1.0

0.0

1.0

2.0

3.0

-1.0

0.0

1.0

2.0

3.0

2015 2016 2017 2018 2019 2020

USUKJapanEuro-zone

CE forecasts

10. UK 10-Year Govt. Bond Yield (%, 1700-2018)

11. US 10-Year Govt. Bond Yield (%, 1890-2018)

0

2

4

6

8

10

12

14

16

0

2

4

6

8

10

12

14

16

1890 1910 1930 1950 1970 1990 2010

12. 10-Year Government Bond Yields (%, 2014-2019f)

-0.50.00.51.01.52.02.53.03.54.04.5

-0.50.00.51.01.52.02.53.03.54.04.5

2014 2015 2016 2017 2018 2019

USUKGermanyJapan

CE forecasts

13. Central Bank Assets (% of GDP, 2007-2018)

0102030405060708090100110

0102030405060708090

100110

07 08 09 10 11 12 13 14 15 16 17 18

JapanEuro-zoneUKUS

14. Standard PE Ratios (1965-2018)

15. Price/Earnings Ratios For The S&P Composite (1900-2018)

05101520253035404550

05

101520253035404550

1900 1920 1940 1960 1980 2000

Shiller's CAPE

Price/12m forward operatingearnings ratio

16. CAPE in 3 markets (operating earnings, 1983-2018)

05101520253035404550

05

101520253035404550

1983 1988 1993 1998 2003 2008 2013 2018

US (S&P 500)UK**Euro-zone**

*Using operating EPS where available; **Total market

17. FTSE 100 & UK Nominal GDP (Jan./Q1 1984=100, 1984-2018)


9. Interest rate prospects

Authorities moving tentatively.

Inflation could surprise.

The Austrian argument.

Asymmetric risk.


100

105

110

115

120

125

130

100

105

110

115

120

125

130

2016 2017 2018

FTSE 100

Nominal GDP

20. S&P 500 & US Nominal GDP (Jan./Q1 1984=100, 1984-2018)

21. S&P 500 & US Nominal GDP (Jan./Q1 = 2016, 2016-2018)

22. Major Equity Indices (Local Ccy, Jan. 2006=100, 2006-2018)

23. Major Equity Indices (US$, Jan. 2006=100, 2006-2018)

24. Real Fed Funds Rate (%, 1950-2020f)

25. Conclusions

Danger of an inflation surprise.

Asymmetric interest rate risk.

Similarly for bonds.

American equities look exposed.

UK equities look reasonable value.

By Roger Bootle

The Financial Outlook


Closing remarks

Emma Palfreyman


Upcoming events and research

Conference

The Future of DB Survey

Survey results for participants will be released in June 2018. Thank you to everyone who participated in the survey. Copies of the results will be publically available on our website in June 2018.

Research publication

Defined Contribution Conference

Thursday, 20 September 2018

Timings09:00 - 14:30pmFour Seasons Hotel Ten Trinity Square, London

Conference

Risk Solutions Conference

Thursday, 26 September 2018

Timings09:00 - 14:30pmWillis Towers Watson offices51 Lime Street, London

Seminar

Corporate Consulting Seminar

Wednesday, 28 November 2018

Timings09:00 10.30amWillis Towers Watson offices51 Lime Street, London

Documents

The Willis Towers Watson 2018 Pensions & Savings …...TATA STEEL UK - Negotiations with many different parties - Public consultation on the BSPS (covered a number of options, including