Scottish Widows Income Drawdown illustration

SallyG

I should also say that I'm aware that there are changes afoot in income drawdown - the max income cap might change and there's consultation on a minimum income requirement for drawdown above that level - is there any point discussing drawdown with an IFA until the changes are announced?

SallyG

Found quite a few explanations of critical yield online but there seems to be some doubt about the method?

"Annuity Direct has recently launched a Fair Unsecured Pensions (FUSP) campaign, which calls on all professional advisers and other interested parties to pressurise the FSA and product providers to create a fair analysis of critical yields.

(Note: The critical yield is the annual return required on the drawdown fund to enable the client to draw the annual income they could have obtained from an annuity at outset !!!8211;the higher the annuity rate the higher the critical yield and therefore risk of drawdown).

By launching this campaign we want to put maximum pressure on the FSA to force insurers to fully explain to clients how critical yield is generated. Right now we do not think insurers are coming entirely clean, he said.

Without proper rules it is not in an insurer's interest to use a high annuity rate as it makes unsecured pensions look risky.

At the core of the FUSP campaign is a clear and concise manifesto:

Clients entering into an unsecured pension automatically receive a whole of market guaranteed annuity quote which if appropriate takes account of any medical condition. If a Guaranteed Annuity Rate applies, then it is always used if better than the whole of market best rate.
The best rate obtained, or guaranteed rate, is used to calculate the critical yield on a type A basis
The critical yield generated is always to be quoted to clients and is to be recalculated at each review, based on a current whole of market annuity rate which takes account of any changed medical circumstances and any guaranteed annuity rates available."
Should I expect a good IFA to do the above?
Can I assume a proper drawdown illustration will automatically involve my best annuity quote?

The current SW annuity rate/pension income until now quoted in my annual stakeholder statement - ie what the fund would produce if I bought a standard annuity from SW at the date of the statement - is always just about bottom of the league when compared with the others in the FSA annuity comparison tables- ie the only handy measure available to me.
That current rate was a good barometer/pension MOT -
now SW's 2010 annual report just received has stopped quoting the annuity income as it now stands and the various effects of cash lump sum extraction etc - it now gives only the possible annuity at my age 75 / in 12 years time and assumes 7% growth.
It also shows what part of my pension is "government payments" - not sure if that places that part of the pension under special restrictions.
My pension resulted from sharing a deferred final salary pension on divorce - forced to transfer out, the protected rights became safeguarded rights which classification was then abolished - why are protected rights still shown separately I wonder?
Have the reporting requirements changed? - for me all the annual automatic information from SW suddenly got much less useful.

dunstonh

(Note: The critical yield is the annual return required on the drawdown fund to enable the client to draw the annual income they could have obtained from an annuity at outset !!!8211;the higher the annuity rate the higher the critical yield and therefore risk of drawdown).

There are two critical yields. Rather adventurously called "critical yield A" and "critical yield B". That is just one of them.

Without proper rules it is not in an insurer's interest to use a high annuity rate as it makes unsecured pensions look risky.

I dont think any insurers retail unsecured pension income direct to consumer. If they did, they would use their own annuity rates.

Should I expect a good IFA to do the above?

You should expect any IFA to do that. Its basic comparison and analysis. However, not all guaranteed annuity rates are good value. If paid annually in arrears with no guarantee then it can be risky using it for a couple.

Can I assume a proper drawdown illustration will automatically involve my best annuity quote?

The illustration may not but the IFA comparison would typically look at OMO annuity rates.

why are protected rights still shown separately I wonder?

Because protected rights are not being abolished until 2012. Any crystallisation before 6th April 2012 on protected rights will have to comply with todays rules. Not those that come in after April 2012.

SallyG

Thanks to all for your help.
Seems weird that I could now slip casually into the worst annuity deal with my current provider without any need to prove to the State that it made sense.

Loughton_Monkey

SallyG wrote: »

Thanks to all for your help.
Seems weird that I could now slip casually into the worst annuity deal with my current provider without any need to prove to the State that it made sense.

I can see why it might sound weird to some. But basically, the FSA regulations are very little to do with 'value'. Only about 'appropriateness' and understanding.

They deem that anyone should understand what an annuity is (it's not difficult after all) and therefore if you don't want to shop around, or - as you suggest - go to the poorest value option, then that's OK. Ironic, but true.