stilover

Just depend on your pot, and how your health is.

My old man retired a few years ago, and has a decent pot. As Annuity rates were soo low, he has postponed taking an Annuity, but is allowed to withdraw £XX amount each year.

If he died tomorrow, my mother would get half his pension. If she died 12 months later, all the pot is gone.

Now, he is free to withdraw all his cash, so on his death, all his family would benefit from his savings. Yes, those saving will go down as he spend it, but giving something to family, rather than giving it all to the pension provider is far better.

LEO-RS

I think you are seriously out of touch with reality, what do you do for a living? Sell annuities?

They have been legalised theft schemes for many years now in my opinion, who will want to buy an annuity on the day of retirement and be locked into a plan with no flexibility? Who will want the pension provider to 'win' and keep their money should they die early rather than it being passed down in its full entirety to their spouse or their children?

I suspect the vast majority of people will want full control of their funds to do exactly what they want with them. There will always be a regular income from the state pension and there are other ways and means of securing a regular income from investments to add to your state pension.

Best buy annuity rate with £100k pot, single life 3% escalation with a 5yr guarantee = £4,211pa

http://www.hl.co.uk/pensions/annuiti...best-buy-rates

So you give them your £100k in 2014 aged 65,

4211/4337/4467/4601/4739 - Years 1-5 (Aged 70) (£22,355)
4881/5028/5178/5334/5601 - Years 5-10 (Aged 75) (£26,022)
5769/5942/6120/6304/6493 - Years 10-15 (Aged 80) (£30,628)
6687/6888/7095/7308/7527 - Years 15-20 (Aged 85) (£35,505)

The average age of death for a man today in the UK is 79yrs old. So taking this figure you will have been paid just £72,512 of the £100k you gave them 14yrs previously by the time your 79th birthday comes along, you then die the day after and the pension company take the remainder of your money. In order to get your initial £100k back you need to make your 83rd birthday so that's a massive 18yrs after your initial £100k 'investment' just to break even. You then only win by staying alive beyond 83, but saying that, how much would your £100k be worth after 18yrs growth? Probably somewhere in the region of £200k so you will never ever win, these greedy pension providers always do. They're a con and good riddance to them

I doubt you are going to convince anyone that the future is in annuities

paulr

1.If you take the 100k out at 65, you get taxed so get a lower sum.
2.What would you do with it to get a better return than £4,211 bearing in mind the lower sum
3. It would grow, correct, assuming you dont touch it.

I understand your point about YOU keeping the capital. However, income is important too.

LEO-RS

I didn't say to take the £100k out on day 1, that would of course be a silly move as you would be stung for 40% on the portion above the higher rate tax point. Keep your pension pot invested but drawdown on it as and when required. You could take out a sum that will keep you within your personal tax free allowance to withdraw from tax free. The annuity figure of £4,211 is still taxed the same way a sum withdrawn as drawdown will be, figures are just illustrative, the pension pot could be £500k and the annuity £20k pa, same applies.

I suppose it's down to the individual but I cant see annuities, certainly in their current form being an attractive choice when the winner is usually the pension provider. What is attractive with these new plans is any money leftover on death will go straight to your family rather than a shareholder of the pension provider.

EddScott

I think the only way to avoid the 55% tax charge (under the new rules) is if the pot is drawn down before death.

From what I read I didn't think the 55% charge had been removed from funds still in the pot - for now anyway - it is likely to change.

You basically have 2 risks with annuities vs drawdown (ignoring annuity rates which are where they are for a reason - its "not quite" the racket its being made out to be)

Annuity risk (Inflation) - you get a low income, inflation rises, you can't afford anything.

Drawdown risk (investment) - the "pot" remains invested, your fund performs badly, your pot falls in value, you end up with less than had you stuck with the annuity.

A revamp of the annuity rules would probably have been safer than removing all the rules on drawdown.

You can see some IFAs rubbing their hands with the earner this is going to be. Others are just going to see it as the next mass miss-selling scandal.

Dingdongler

Thanks

cster

They do indeed, but I can't see how they could apply to NHS and other Public sector pensions, as there is no pot per se.
I can understand if they applied it to private pensions where people have built up their own pots. But these schemes are not as generous as the Government variety.
In my own case, I have calculated that if I stop working at 55 y/o and then collect my pension at 60Y/O, the lump sum I receive will be equal to all of the contributions I have made to date (in total without uplifting).
Should I live to 80 y/o, I will have withdrawn roughly another 6x the amount of my total contributions. I'd love to see any private pension perform like that. And that is without my wifes 50% share after my demise. Statistically she should get another 15 years worth at 50%.
I imagine this is a fairly typical situation for any public sector worker who is nearing 55 years of age. Obviously contributions have gone up over the last year or two, but for those considering retirement now, that is not really an issue, more of an incentive not to work even.
I just can't see them just handing this sum over, especially as it would severely limit their ability to tax this money down the track - by charging NI as well as Income tax on monthly income for example.
Will be interesting to see what develops.

hodgy0_2

History will see it as a disastrous policy

cster

Maybe, but do you like being treated like a child?
I know I don't.
Too many people seem to think they know what is best for me - well I say fu*k the lot of 'em!

Midlife......

iTrader: (2)

cster.......are you in the police / fire then?

for me to get my 40 years in for my full pension that would make me 63 years old at the time I could think about retiring ........

Shaun

SouthWalesSam

iTrader: (1)

Yes. I'm research partner for a financial adviser firm.

However, we sell more drawdown plans than annuities. In time though most of these are converted in whole or part to annuities because our clients have tended to become more risk averse with age and want security of income at the highest level possible but at lowest risk.

I wouldn't try to defend annuity rates but.. life expectancy is not static. It improves every year. And we're not talking about average UK male life expectancy. We're talking about under 65 year old life expectancy. Most under 65yo UK males alive today will live to well into our 80s.

LEO-RS

A fair point that we may live longer but even with the figures quoted in my original post, the break even point is some 18yrs after, around the 83rd birthday just to get your original pot back. Who knows what the future holds for our generation of sub 65yr olds, our diets and our lifestyles are much worse now than they were for our current pensioners. Over half of today's population are overweight, diabetes cases are rising year on year due to our junk food type diets. Yes, medicine and technology may counteract that but it remains to be seen what kind of life expectancy we can all expect to achieve.

Logically, I would think you would need more money in the 65-75 bracket, a little less in the 75-85 bracket and probably next to nothing in the 85-95 bracket due to restrictions in mobility, health etc.

There's a few articles out this morning that there are tens of thousands of people now requesting refunds of the annuities they have purchased within the last 30-60 days, this tells you something, other articles are stating that the annuities market will shrink by 90%, share prices in these companies have plummeted. For these companies to survive, they will need to up their game and offer a much better deal than they are currently doing. You obviously know a lot more about it than I do, I'm just giving my personal view, I'm personally glad that I have a lot more freedom now as annuities scared the hell out of me.

cookstar

iTrader: (6)

I can't help thinking the BTL market is going to hot up with this. It's an obvious choice for someone retiring with access to a chunk of cash.

SouthWalesSam

iTrader: (1)

There's been a lot of over-reaction in the industry as this was one of the biggest surprises in a budget in many decades. The dust will settle soon.

The key things are:
1. Accumulate as big a pension pot as you can because you get a big discount on what you put in and you now get more choice over what you can do with it when you come to take it out.

2. When you come to retire/take your pot take good advice so that you get the best arrangements for your circumstances.*

* But then, I would say that, wouldn't I??!!

Dingdongler

I agree with Leo and cster. I've kept well clear of private pensions (inc sipps) because I can't accept the restrictions that are then placed on MY money. And the fact that my wife and I could die within a few years of retirement and my children will get nothing, the pension company walks off with all my money.

The tax advantage has been rammed down my throat by a number of IFAs who think I'm mad not to have a private pension. But I've still not been tempted, annuities are a scam imho.

Now that an individual may actually have control of their own money rather than being at the mercy of the financial industry I might reconsider.

john banks

I'm concerned by this advice, with only modest contributions and growth you could easily shoot through the £40k annual allowance and who knows what fiscal drag that will have on it?

paulr

People are forgetting a few things. If you contribute £100 a month and your employer contributes £100, then for £80, you are getting £200 a month into your pension. There is no other savings vehicle to come anywhere close. Now, under the new rules, you can decide what you do at 55.

Take a lump sum.
Take a monthly lump sum to top up wages.
Pay off a debt.
Pay off the mortgage.
Leave it.
Take some as an annuity.

Pensions have suddenly a much better product.

Chip

Haven't finished counting it all yet

paulr

Does anyone think the btl market may be too hot. What if everyone started buying again?

Dingdongler

The whole housing market (not just btl) in London is mad at the moment. It's all open days, sealed bids, best and final offers etc

paulr

Regarding pensions, there is an interesting comment by the IFS. If pensions are now basically a savings scheme, why do they attract tax relief?

Beware future governments (most likely Labour) having a look at this.

(*******s)

AndyBaker

Bang on, it's got miss-selling written all over it. I can think of a good number of my clients that will just raid the pot and have a nice car and holiday, even if advised against it, it's just human nature.

hodgy0_2

yep

paulr

Thats not misselling though. It not taking advice.

Dingdongler

How awful, an individual having the audacity to decide what to do with their own hard earned money.

Personally I'm far too stupid to know what to do with the money I've grafted day and night to earn. That's why I hand it all over to a financial industry 'professional' so they can take most of it and hopefully give me a few pennies back.

LEO-RS

I think you are forgetting one major factor here being that the funds are taxed on withdrawal.

If it were a savings account you would be taxed on the way in but not on the way out, pensions the other way, tax relief on the way in, taxed on the way out.

Otherwise they would be taxing the same money twice which makes little sense. Tax relief is here to stay.

AndyBaker

Not according to the Ombudsman, they'll say we shouldn't have let them do it and uphold any complaint - seen it before

cster

If you give someone advice and they don't take it, they can hardly sue you.
That would be mis-not-selling.
Anyways, it seems to me that the type of people who will be in this situation are people who have had the where with all and intelligence to plan for the future and save - so they should be OK at handling money.
It is not as though the situation is going to apply to the product of the welfare state who think (quite reasonably) that money grows on trees. Unless they win the lottery of course.

john banks

Default defensive position to avoid being sued will surely be for advisers to recommend annuities backed up by a personalised version of a PDF that says about nothing intelligent at all.

tony de wonderful

That's the whole point from what I can tell, although IIRC the average pension pot is only 30k?

Still it goes with my other observations that the state is doing everything it can to promote house price inflation.

The young and propertyless will be exploited to the max.