got my annuity quote today

EdInvestor

jamesd wrote: »

It won't double in value.

It will compared with Steve's proposal of getting an annuity and saving up the payments.

You'll really need to use investments to get ahead of inflation.

True, but that's a different issue, not relevant to the comparison I was making.

A drawdown plan can be invested in a mix of assets including cash, shares, bonds/gilts and property, so if you want to add a risk element by investing some (or all) of the money, it is very easy.

JHC

When I retired recently I looked into annuities v income drawdown. As I understand it, income drawdown requires regular investment reviews (at least every 5 years) which have to be paid for by the client. Also there are likely to be portfolio management fees (implicit or explicit) similar to charges levied by Unit Trusts. Of course, within a SIPP you could do much of this yourself, if you have the time and aptitude, but most people don't.

Many advisors suggest that because of the additional overheads, income drawdown is only really suitable for larger sums (? over £100,000). And then there are risks from poor markets and choosing funds which underperform.

On a slighly different point, I would have thought that an IFA would prefer a client to go for income drawdown rather than a simple annuity. In my case a lump sum of £120,000 gave him a fee of nearly £1,000 - not bad for a straightforward open-market transfer. But how much would he have earned through investment reviews every 3 years over the next 15 years with income drawdown?

John

dunstonh

As I understand it, income drawdown requires regular investment reviews (at least every 5 years) which have to be paid for by the client.

You can do the review yourself but it needs to be done.

Also there are likely to be portfolio management fees (implicit or explicit) similar to charges levied by Unit Trusts.

Not in addition to. The standard annual management charge would apply in most cases whether you use unit trusts or insured funds. You can also use direct investments if you like.

any advisors suggest that because of the additional overheads, income drawdown is only really suitable for larger sums (? over £100,000).

Personally, I don't buy that part of the discussion. It may be correct historically but not any more where you can get drawdown investment funds for the 1% stakeholder charge or unit trusts at their normal retail charge.

And then there are risks from poor markets and choosing funds which underperform.

Thats the key point in my opinion. If the bulk of your income is going to be reliant on the pension, then can you afford to be taking investment risk with it? A guaranteed income for life is going to be more important. However, investment risk is just one risk you have in retirement. Inflation risk and shortfall risk are others to consider.

On a slighly different point, I would have thought that an IFA would prefer a client to go for income drawdown rather than a simple annuity.

There are advantages and I would do drawdown with my own. However, its not about the advantages. Its about the disadvantages and how you would react and feel if something went wrong. This is why the regulator and the FOS both consider it high risk.

jamesd

JHC wrote: »

On a slighly different point, I would have thought that an IFA would prefer a client to go for income drawdown rather than a simple annuity. In my case a lump sum of £120,000 gave him a fee of nearly £1,000 - not bad for a straightforward open-market transfer. But how much would he have earned through investment reviews every 3 years over the next 15 years with income drawdown?

Standard trail commission is 0.5% of the total investment value and that's what Hargreaves Lansdown seems to take for its execution only (no advice at all) SIPP business. In addition HL charges a little for the reviews. That 0.5% would be some £6,000 a year on a £120,000 investment.

Switching from an IFA that's mostly execution only like Hargreaves Lansdown to someone like dunstonh I expect you to be offered at least these options:

1. Flat fee of a thousand or two at the start, depending on how much investment selection advice you want, then all of the 0.5% rebated to you, with servicing paid as needed. Rebated would normally mean just not charged in the first place if a regular IFA does it, since they have the option to set how high it should be.
2. Similar to 1 but a little of the 0.5% kept by the IFA, sufficient to cover the agreed fee. Can be more tax-efficient.
3. Similar to 1 or 2 but with part of the 0.5% kept by the IFA for annual reviews and rebalancing of the investments, the remainder just deducted from the usual cost so you don't pay it.

The standalone IFA of dunstonh's sort should work out a good deal cheaper than HL for the sort of amount you're writing about.