Saving for your retirement - a new approach

peterbaker

Mark you've scattered the pigeons in here

They are circling I guess and will be back soon.

You know that what you have introduced sounds exactly what so many of us want.

You say you do not wish to convince anyone.

I am not convinced you mean that

I am but a simple soul who is everything you have described as yourself (except I am not probably someone who once designed precipice bonds ).

I do however gel with what you are selling, but of course you'll surely forgive if we are thinking

... if it walks like a duck, ...

or if it looks too good to be true ...

Tell us more about yourself and exactly what you know about this thing.

mbarge

peterbaker wrote: »

Tell us more about yourself and exactly what you know about this thing.

Peter

First of all I am an Actuary (FIA) but any views expressed on this forum are mine and not representative of the profession. I now work mainly on investment banking related products specifically on issues of risk management.

Whereas I did not design precipice bonds- I did design most of the fore-runners such as high income bonds and guaranteed equity bonds. Others then took these ideas and turned a gentle slope into a precipice. My problem with them was not the products themselves but the lack of adequate risk warning - in the money marketing article I was quoted accordingly.

I certainly did not design the deferred annuity concept (section 226 deferred annuities were issued by insurers over 20 years ago but in an effort to push all the risks (and potentially more rewards) to policy holders - they moved into unit linking and abandoned fixed guarantees.) but being extremely risk averse (ironically I suppose) I very much like the concept (for reasons given previously) as long as it is fairly priced.

There is, I'm afraid, only one UK life company issuing deferred annuities at the moment but hopefully more will follow if it catches on.

However it is not "too good to be true" - life companies take on massive longevity and investment risk when they write that business and that means lots of capital is needed to back it up - that means they will not be cheap.
Furthermore deferred annuities carry their own associated risks

- You are generally not protected from inflation
- Interest rates may be higher when you retire and annuities cheaper so it may be better to wait
- Future expected improvements in mortality may not be borne out again resulting in cheaper annuities
- Alternative equity or property investments may produce higher returns over the period

Against this you weigh up the peace of mind of knowing exactly what you'll get and exactly when you'll get it. Of knowing that every time you hear about a stock market crash you are protected and every time you hear about annuity rates going down it cannot affect you.

peterbaker

Well Mark, I am sure your contributions in MSE are very welcome. I am old enough to remember Section 226s and old enough to remember when my employer company then (Royal) said about unit-linking ... nah ... we don't need to do that ... very risky for our customers if we did. We'll stick to what we do best - With Profits. Then of course they went into unit-linked and look what has become of WP!

I do hope you can stay - I'd love to see a continuing debate between you and that wonderfully cherished piece of what seems like original MSE furniture, the eminent chief correspondent from Norfolk, dunstonh. And of course with Paul_Herring too.

Things are looking up today!

mbarge

peterbaker wrote: »

I do hope you can stay - I'd love to see a continuing debate between you and...

Thanks - I think!

I have to admit that it's all been a bit surprising. I didn't really expect many people to be much interested in this but nevertheless I do
welcome a healthy debate.

peterbaker wrote: »

..and look what has become of WP!

Please don't get me started on With Profits!

Patrick10

I would look for an alternative to a pension all together. Have you ever considered property?

Aegis

Patrick10 wrote: »

I would look for an alternative to a pension all together. Have you ever considered property?

So instead of saving in a tax efficient environment with tax relief on the way in, tax free cash on the way out and potential for investing into a variety of assets classes, you recommend locking large amounts of money into a (presumably) geared investment in a single pretty volatile asset class?

Not sure that's the best bet.

Paul_Herring

Aegis wrote: »

So instead of saving in a tax efficient environment with tax relief on the way in, tax free cash on the way out and potential for investing into a variety of assets classes, you recommend locking large amounts of money into a (presumably) geared investment in a single pretty volatile asset class?

Not sure that's the best bet.

You say that like it's a bad thing to do?

Aegis

Paul_Herring wrote: »

You say that like it's a bad thing to do?

Well, it doesn't have to be a bad thing if it's done for the right reason as part of a balanced portfolio.

mbarge

Patrick10 wrote: »

I would look for an alternative to a pension all together. Have you ever considered property?

Whereas I agree to some extent with the objections above I do believe that property is a reasonable alternative. It's high yielding relative to interest rates and generally holds its value in real terms.

Demographically the UK has always favoured property, shortage of supply in and expanding population.

However it's bulky and requires a lot of management. Getting it "right" requires judgement and skill - neither of which I seem to possess when it comes to investing in property!

Paul_Herring

Aegis wrote: »

Well, it doesn't have to be a bad thing if it's done for the right reason as part of a balanced portfolio.

Oh dear - my sarcasm tags and smiley seem to have disappeared from my post that you replied to