The one word that caused the pension crisis! Blog Discussion

Pam_West

You're absolutely right! Particularly during the economic crisis there has been so much anxiety around pensions, but it seems to me that people ought to stop worrying so much. My pension hardly took a hit at all, and my fund managers SDB Strategic Planners did a brilliant job of making sure that my investments were moved out of the dangerous areas at the time.
I do actually think of my fund manager as a bit of a guru. His tips for surviving the economic downturn have served myself and a number of friends very well. I would recommend having a look at his video on youtube called 'The SDB Approach'. It certainly helped me to relax.

karenB

when i was 19 (i'm now 37) i thought i was being savvy and asked the Pearl advisor (who came round to our house) if i could start a savings account for 10 years and a pension scheme both were 'with-profits'. i have since received my savings back and got more than £500 less than what i put in plus the first five years i received bonuses of about £500 so £1000 loss.

my pension is now frozen because i closed it to join my employers pension scheme which was supposedly better but only last year they changed from the 'final salary pension'.

am i getting short changed on my pension and is there any way to claim back on my savings:o:eek::(

FatherAbraham

garryhq wrote: »

Flippin’ annuities eh...?!!
I never thought about what happens to accrued pension funds after an early death - well, apart from the widow's pension of course. I suppose these companies just 'absorb' the remainder - they appear to be much like William Hill, hoping the favourite falls at the first fence!

It's clear you haven't thought much about it, I'm afraid. Most of the "excess" capital from those who die young goes to fund the incomes of the annuitants who live longer than their expected lifespan. That's generally how insurance works -- by providing risk pooling. The insurers aggregate independent risks, and charge a relatively small fee for doing so. This is a far more efficient way of extracting lifetime income from capital than every individual trying to provide for himself.

It really is odd that it's so easy to convince people that annuities are a con. They're one of the simplest, most competitive, and best-value insurance products around.

garryhq wrote: »

Actually, my main reason for posting to this group was to ask you knowledgeable folks four really simple questions.
1. Must all pensioners buy an annuity and, if so, why?

Because an annuity is an income for life. A better name for it might be "longevity insurance" (which is what Stephen Pollan calls it in "Die Broke"). Another name for an income for life is a pension.

The whole purpose of the tax breaks (via deferral to a time of lower income) around the fund used to accumulate capital during working life is to encourage people to provide their own income for life when they stop working.

Regards,
FA

FatherAbraham

marklv wrote: »

In their places what we have is glorified savings schemes that will generate pots of cash that the government will not even let you spend - because it wants you to buy an annuity, one of the worst things you could ever do with a lump sum!

Surely you mean that an annuity is one of the best things you can do with your money, if you want to guarantee an income for life?

marklv wrote: »

Given that to have an index linked income for life at 60 you can only count on around 4% of the cash pot as an annual income, this means that you'll need a pension pot of £1 million to generate £40K a year!! MADNESS! Chances are that most people on average incomes will be lucky to have £200K as a final cash pot, and what will they get for that? £8K a year. Great!

The "low" level of annuity rates merely indicate how difficult it is to generate returns for the expected lifespan of an annuitant. those who think they can do better by "investing" are almost certainly deluding themselves, not least because they are foregoing the risk-pooling which an annuity provides.

marklv wrote: »

What the government needs to do is - first of all - force companies to contribute at least 10% of salary towards employee pensions, and employees to contribute 5% minimum, then allow the retirees to take as much as 60% of the pension pot as a tax free sum and the remainder to be used for an annuity that should be TAX FREE. This would give retired people the opportunity of investing in things that have tangible value, i.e. houses, not annuities that will expire upon the person's death.

Pensioners don't need investments, thanks. They need guaranteed income for life, for that is what a pension is, by definition.

I find people's willingness to think the worst of annuities flabbergasting. They are such simple, clean, comparable products, which deliver what they promise -- yet so many people want to do away with them, and instead run the risks of living longer than their capital will allow. That's "MADNESS"!

Regards,
FA