The big R cometh

jamesd

zygurat789 wrote: »

And when the spouse dies?

For an annuity, all normally lost. For drawdown all normally inherited after a tax charge. That tax charge is 35% before age 75, 70% after unless the money is left to charity when it's zero. Inheritance tax as well if applicable.

zygurat789 wrote: »

So you invest safely with a low income, and take a pension of 120% annuity rate, you must be depleting your capital

That depends on age and investment return. At younger ages the income from an annuity is low enough that it's not that hard to avoid capital loss. As you get older the annuity payout rates increase and reducing capital becomes increasingly likely if taking high drawdown income.

zygurat789 wrote: »

There is a chance you will lose the lot, both capital and income

There certainly is and it's a serious risk that must be carefully considered before using drawdown.

zygurat789 wrote: »

So this is the ultimate guarantee with a drawdown - penury

The Minimum Income Guarantee means tested benefit is supposed to avoid penury but few people would consider it to be a wonderfully high income. Best to avoid getting to that point. One approach that is interesting to some is using annuities for core income requirements and drawdown for discretionary, so the worst case leaves all required spending still taken care of.

EdInvestor

cyclonebri1 wrote: »

The op is obviously is not interested in any answers to the original post.This is not an advice post, other than the op wanting to advise others.

Yes, this seems to be the problem. The OP first appeared on the site less than a year ago and spent much of his time posting on the polemical house price forum, so he didn't come to the attention of posters in this forum -we don't really know him..

There's no obvious reason why his opinions on annuities or anything else should be given any particular weight - he doesn't appear to be an expert. So it's not surprising that regular posters here missed the point in his OP in this thread that he wanted to discuss the importance of annuities only, and have his views seen as a reference point, rather than seek help sorting out his own personal retirement planning. It might have been helpful if he'd made this clearer earlier rather than adopt a critical tone or chosen a thread title that made it clear (the current one indicates the opposite).

The approach of regular posters with a lot of experience who act as guides to people seeking help here is generally to broaden, rather than narrow discussion, to make sure readers have an appreciation of the 'big picture' relating to their problem.It's unlikely this will change.

zygurat789

EdInvestor wrote: »

Yes, this seems to be the problem. The OP first appeared on the site less than a year ago and spent much of his time posting on the polemical house price forum, so he didn't come to the attention of posters in this forum -we don't really know him..

There's no obvious reason why his opinions on annuities or anything else should be given any particular weight - he doesn't appear to be an expert. So it's not surprising that regular posters here missed the point in his OP in this thread that he wanted to discuss the importance of annuities only, and have his views seen as a reference point, rather than seek help sorting out his own personal retirement planning. It might have been helpful if he'd made this clearer earlier rather than adopt a critical tone or chosen a thread title that made it clear (the current one indicates the opposite).

The approach of regular posters with a lot of experience who act as guides to people seeking help here is generally to broaden, rather than narrow discussion, to make sure readers have an appreciation of the 'big picture' relating to their problem.It's unlikely this will change.

The original post talked about annuities, that's fairly specific and I have, on several occassions said I wanted to know about annuities, as opposed to drawdown. I have read the thread on drawdown v annuities and most of what I read lead me to the opinion that drawdown was not for me, I wouldn't be able to sleep at night, I wouldn't be happy and I may fall below the figure mentioned above below which a drawdown is not adviseable. This is my personal opinion and you should respect the opinions of others. I have not tried to force my opinions on you I have merely tried to explain I don't feel that this is for me.
You and others have attacked and abused me personally for my opinions rather than stay on topic as others have been able to. I thought that this forum was about helping people and adding to their knowledge, you seem to take a different view.
You obviously have a great deal of knowledge but you have refused to divulge it here as you have elsewhere you have instead insisted on comparing annuities with drawdown which was obviously unhelpful.
There are still things I don't know about annuities.

TMFTP

Zygurat,

One thing I suspect you are missing in your desire to understand annuities is the impending impact of Solvency II. If you believe annuity rates are "likely to go up" you may wish to research impact of this legislation on annuity rates, and put an appropriate timescale on your decision.

Yes, I've read your original post.

;-)

jamesd

TMFTP, Solvency II is a significant threat that may be enough to make it contraindicated for most retirees who don't already have an annuity to buy one. A potential 20% drop in income if the scare stories can be believed.

dunstonh

jamesd wrote: »

TMFTP, Solvency II is a significant threat that may be enough to make it contraindicated for most retirees who don't already have an annuity to buy one. A potential 20% drop in income if the scare stories can be believed.

AXA announced a few weeks back that they are pulling out of the annuity market because of Solvency II. It is going to have a significant impact.

TMFTP

Are you sure you mean "contraindicated" jd? Surely "almost compulsory"?

Solvency 2 is estimated to hit (i.e. lower) annuity rates by between 1% and 4%, depending on how much notice the steering group take of the different illiquidity assumptions used for pricing annuity business.

If it's 1% it's bad - that takes away most of the investment "edge" an annuity gives Mr Joe Average over sticking his money in gilts. If it's 4%, it's devastating. There will be literally no point whatsoever in anyone investing in a DC pension. They will be able to match rates in a current account...

Annuity markets (to survive) will therefore be looking at products to pass on proportions of the investment risk or the mortality riskto the customer. And again, if legislation doesn't change to allow return of capital to the estate upon death - why would anyone choose to accept that risk?

Interesting times. Where annuitants will really need advice to understand their options AHEAD of the point at which they make their decision...

jamesd

Maybe we should buy shares in Hargreaves Lansdown now. I can't see move like that and possible reduced payouts as anything other than a significant booster of their SIPP and drawdown businesses. It'll be interesting to see if or how the GAD limits for drawdown are affected by annuity payouts falling more than the amount that drawdown can be over the annuity payout level. Might be interesting for pension buyout firms as well.

It'll also be interesting to watch guaranteed or risk-reduced products and multi-asset investments that can be used in drawdown to see how they go if annuities become less attractive, as seems likely.

zygurat789, for annuity buyers this translates into a window to get in after the markets have gained and before Solvency II. It tends to favor some incremental annuity buying to reduce risk if Solvency II happens and is as bad as it could be. The reason it'll reduce payouts is increased capital buffer requirements which in turn reduce the amount and risk level of the money that can be invested to provide the annuity income. It's a tough time to be making annuity buying decisions, though this time last year was far, far worse due to the condition of the stock markets and what that meant for pension pot values.

jamesd

TMFTP wrote: »

Are you sure you mean "contraindicated" jd? Surely "almost compulsory"?

Contraindicted to buy annuities. Depends how bad it gets. If annuity rates drop by the scare story 20% level it'll make it extremely easy for drawdown product packages at the lower risk range to compete, especially for retirees at the younger end of the age range where mortality drag isn't so substantial a boost to annuity returns.

TMFTP wrote: »

Solvency 2 is estimated to hit (i.e. lower) annuity rates by between 1% and 4%, depending on how much notice the steering group take of the different illiquidity assumptions used for pricing annuity business.

That would be less bad than some of the scare stories. 20% would (should) be a killer of annuities at the low end of the age range, 1-4% might still make the sale on low risk grounds.

TMFTP wrote: »

If it's 4%, it's devastating. There will be literally no point whatsoever in anyone investing in a DC pension. They will be able to match rates in a current account...

Pensions will still beat the S&S ISA option where the same investments and income generation methods are used for both. Pensions can also get the boost from salary sacrifice that the ISA option can't get.

It's only pension bashers who use annuities for pensions and not for ISA who will make pensions look worse than they really are. The ISA users who want an annuity in their pension should also be expected to want that for the income from their ISA, so it's a pretty false argument to use annuity only for the pension side.

TMFTP wrote: »

Annuity markets (to survive) will therefore be looking at products to pass on proportions of the investment risk or the mortality riskto the customer. And again, if legislation doesn't change to allow return of capital to the estate upon death - why would anyone choose to accept that risk?

Yes, I see some potential for guaranteed and reduced risk products and investment packages for drawdown as alternative products for younger retirees.

For those who want return of funds there's still the ASP option and drawdown, though a lower tax charge than ASP's 70% up to a cap of say 25% or the lifetime allowance might be interesting.

Another booster for pensions would be the ability to withdraw capital from a drawdown pot, without added tax charge, to pay care home fees and/or buy immediate needs annuities.

dunstonh

Maybe we should buy shares in Hargreaves Lansdown now

No. HSBC just downgraded them as their vantage platform is not RDR compliant and it is expected they will lose revenue. They are overpriced according to HSBC. Personally I dont think they will lose revenue as they will probably set a 0.25% explicit charge on all assets held.

If it's 1% it's bad - that takes away most of the investment "edge" an annuity gives Mr Joe Average over sticking his money in gilts. If it's 4%, it's devastating. There will be literally no point whatsoever in anyone investing in a DC pension. They will be able to match rates in a current account...

This may tie in with the Conservatives saying they will abolish annuity compulsion. If you can go into drawdown for life then it wont be as bad. However, one of the reasons annuity rates have fallen is that less people use it as more use drawdown. If you encourage more drawdown, that will hit annuities as well. So you end up with multiple whammies,