Scottish Widows Income Drawdown illustration

SallyG

I'm trying to weigh up the benefits of putting my Scottish Widows stakeholder pension into income drawdown vs annuity.
I may decide to do neither - depends on what the illustrations show....
SW send me an automatic annuity illustration about now so I rang to ask for a drawdown illustration too so that I could compare.
After some shuffling around at SW I was told I could only get a drawdown illustration by going to a Lloyds bank branch or engaging an IFA to ask SW for an illustration.
Can anyone explain why SW can't provide me with a drawdown illustration without an intermediary?

dunstonh

Can anyone explain why SW can't provide me with a drawdown illustration without an intermediary?

Because SW do not offer it on their stakeholder pension and it requires the purchase of a new product. As they do not retail the product required direct to public you cant buy it.

When a provider has a distribution channel as well, they have to have a whole load of compliance requirements and staff to deal with it. SW I believe only offer their most basic product direct to consumer and not their personal pension or retirement account. They also dont offer the product with any real discount either so there isnt a cost saving.

After some shuffling around at SW I was told I could only get a drawdown illustration by going to a Lloyds bank branch or engaging an IFA to ask SW for an illustration.

I would be very surprised if Lloyds branches offered the unsecured pension option. They are typically not geared up or qualified to do such transactions.

The SW retirement account isnt a bad product. indeed, for very large values it can be cost effective. However, for smaller values it is not very cost effective. I wouldnt limit yourself to looking at just Scottish Widows on unsecured pension option and certainly wouldnt use their annuity rates to compare it against as SW annuity rates tend to be very poor (unless there are guarantees available).

SallyG

Thanks again - I didn't appreciate that it was a new product - no explanation from SW direct sales.
Looking at SW website I think a trip to Lloyds might be for grooming and plucking a sitting duck?

Loughton_Monkey

SallyG wrote: »

I'm trying to weigh up the benefits of putting my Scottish Widows stakeholder pension into income drawdown vs annuity.
I may decide to do neither - depends on what the illustrations show....
SW send me an automatic annuity illustration about now so I rang to ask for a drawdown illustration too so that I could compare.
After some shuffling around at SW I was told I could only get a drawdown illustration by going to a Lloyds bank branch or engaging an IFA to ask SW for an illustration.
Can anyone explain why SW can't provide me with a drawdown illustration without an intermediary?

Whenever you wish to take a pension, with whatever company, you must shop around at 'Vesting Date'. Saving up the pension pot is one thing. Converting the accumulated pot into a pension is normally considered an entirely different thing.

When I decide to take my own SW pensions, I would give them the opportunity to quote only on 'moral' grounds. But I would also shop around to death to get the best rates for my annuity (or drawdown).

Seems you have already asked them for a quite which they have refused. Job done. Go elsewhere.

However, remember that what you get can only be an 'illustration'. It is in the nature of drawdown pensions that (unlike ordinary annuities, where the benefits are set in concrete) the performance in future will be a function of charges and fund choice. So nothing is certain. Go with whoever you think will give you best charges and fund choice.

SallyG

The message I'm getting generally seems to be that I can't go from my stakeholder into income drawdown without an IFA ?
In simple terms can you say why not?
Is it covered by legislation/FSA rules?

dunstonh

The message I'm getting generally seems to be that I can't go from my stakeholder into income drawdown without an IFA ?

You can use an IFA or DIY but not using Scot Wid. Not many tied agents will do drawdown.

In simple terms can you say why not?
Is it covered by legislation/FSA rules?

1 - Its classed as a higher risk transaction. So, many firms with tied agents dont like their sales reps offering it as they dont have the qualifications/experience/understanding. Plus, the FSA expect servicing to be put in place for it under advice and most tied sales reps work on a transactional basis and not servicing basis. So, they would have problems with their compliance if they were to do it.

2 - Scottish Widows dont retail their drawdown product direct to public. So, you cant buy what isnt available. I'm not sure but I dont believe that they even allow their own tied agents to have access to the retirement account even where drawdown is not being used. I think they only do stakeholder and personal pension.

Basically, SW are protecting their backsides. Tied agents often have restrictions that IFAs do not have. Direct to public products are also often cut down or restricted versions of the IFA product. There are different rules for advice, product provision and distribution. With those rules comes costs. Some of which can become signficant. Unless you are going to retail a product in sufficient volume, its often not worth offering it direct as it will cost too much. That is why Scot Wid, for example, direct stakeholder is more expensive than many pensions sold via IFAs even on a full commission basis, let alone fee or discounted.

Loughton_Monkey

As I understand it, there is no legislation, as such, requiring you to go to an IFA.

What you are seeing is a direct implication of FSA regulation of Investment Companies. Each company must ensure that it has sold an investment product according to detailed regulations. In general, they either do this using their own representatives (and thus carry their own risk of having to compensate you for bad advice), or by using IFA's (in which case the IFA is carrying the risk and would be legally liable to you for mis-selling).

There is (or certainly used to be) an arrangement under which a consumer could buy a regulated investment product as "execution only" - which is shorthand for saying "I am the customer. I know what I want. I am signing to say I want it and am taking my own responsibility for understanding what I am buying...". But interpretation of the rules currently is that even then, there is still a heavy onus upon the Insurer to make sure that the consumer has an 'appropriate' level of knowledge and expertise on the subject.

Therefore, I would interpret this as saying that you may be able to buy this without advice, but might need to prove that you have, say, FCII qualifications, have consistently and for a long time traded and invested in markets and have a good knowledge of funds, risks, and pension schemes generally.

You see buying a 'standard' pension is fairly straightforward. You shop your fund around, and companies will pay you £X a year. Very simple. The 'product' has been totally packaged and all the mortality and investment risks have been built into the company's offer. But with income drawdown, you are effectively 'buying your own annuity' and as a result, you are continuing to carry your own mortality risk and your own investment risk.

I would put it another way. Income drawdown is a relatively new concept, put into the market by "expert" investment analysts [Ha! In theory!], and introduces a completely new set of risks, previously unknown to consumers. Not only that, but by definition it is aimed at the older (and potentially most vulnerable) end of the community and at its worst could leave a pensioner far worse off than the previous 'compulsory' defined annuity.

vbm

There is very good reasons why insurance companies dont allow it.

If someone is looking to take income and they dont understand - mortality drag / gain then they shouldn't be looking to take an income via drawdown.

I dealt with a complaint a while ago from some guy who had sacked his IFA, accessed drawdown via an exisiting option on his SIPP. He decided taking max GAD was a good thing. Didn't understand he should have been taking income out of his cash fund, suffered harsh reverse pound cost averaging, poor invesment performance and depleted 60% of his fund. Then wanted to buy an annuity and found his once mighty fund would now provide him with considerably less than he could have got 5 years ago.

In my opinion taking income via income drawdown is every bit as complicated as a DB transfer and isnt regulated tightly enough. J05, K10 or G60/AF3 should be a minimum advisor requirement.

dunstonh

In my opinion taking income via income drawdown is every bit as complicated as a DB transfer and isnt regulated tightly enough. J05, K10 or G60/AF3 should be a minimum advisor requirement.

Whilst I agree to some extent, this guy sacked his IFA and went DIY. You cant force the consumer that wants to DIY to sit the exams.

Loughton_Monkey

dunstonh wrote: »

Whilst I agree to some extent, this guy sacked his IFA and went DIY. You cant force the consumer that wants to DIY to sit the exams.

We could help by giving consumers an 'online' course for investment in all these complicate matters. Here's a starter:

Pension: Something to 'cash in' as soon as you can.
SIPP: A pension scheme that is always 'better'.
Share Dealing: The best way to make huge money fast.
Forecast: Fishing before everyone else.
Investment: Thermal underwear for bankers.
e-Saver: A hoarding drug dealer.
Fund: Something that can go down as well as belly-up

SallyG

Thank you so much for the information and insights.
Can you give me any idea of what a good pensions IFA should consider at a meeting to discuss income drawdown?
I'm interested in being able to spot a dud/select a good un - what do I need to watch out for?
I know that going into drawdown "crystallises" the pension? /makes it a USP and therefore a higher tax level will apply to the fund when I die.
I understand there'll be a "critical yield calculation" - to show what fund size/growth I'd need to match an annuity?Are there any credible worked examples online?
How would you choose an IFA to advise?