ECJ Ruling

okydoky

I am 55 shortly and will give up work within the next two years - maybe much sooner.
My intention was to live off my savings and continue to pay into pension and take TFC and pension at age 60, but with this ruling I am told annuity rates for males will reduce by 8%, so question is, should I take annuity sooner and avoid reduction?
Many thanks

kidmugsy

An article in last weekend's FT seemed to think that a 2.5% reduction was more likely. I don't know enough to offer an estimate of my own.

dunstonh

The difference in actual rate terms is about 0.3% p.a. However, with rising interest rates on the card, that could easily be swallowed up by those.

should I take annuity sooner and avoid reduction?

Annuity rates in your 50s are dire. This is why many in their 50s look at the unsecured income option rather than the secured income option. However, if your only reason is tiny annuity rate reduction then its not worth taking it early.

JOHNGT

The 8% to 10% reductions are estimated by commentators whose businesses have annuity shops so they have a vested interest in getting you to buy now.

Rates for males are about 5% higher than female rates. However, 80% of money buying annuities is male money so you should expect that blended unisex rates will be nearer male than female rates. Expect male rates to fall by around 1% to 3% depending on age.

As dunstonh says, a rise in long term interest rates (long dated government and corporate bond yields) can have a much bigger effect on rates than the gender issue. Pressure on rates is likely to be upwards.

You should wait.

SallyG

"80% of money buying annuities is male money" - that's fascinating - why don't more women buy annuities?
What do women do with their defined contribution pensions?
Any stats on what % of women have pensions other than basic state pension?

dunstonh

why don't more women buy annuities?

Its a historical position where those that have been coming up to retirement in recent decades have been the old single worker households where the wife was a housewife or just did part time work.

Loughton_Monkey

okydoky wrote: »

I am 55 shortly and will give up work within the next two years - maybe much sooner.
My intention was to live off my savings and continue to pay into pension and take TFC and pension at age 60, but with this ruling I am told annuity rates for males will reduce by 8%, so question is, should I take annuity sooner and avoid reduction?
Many thanks

If you do wish to start drawing your pension at 55, maybe you should simply consider drawdown. You can draw down roughly the same amount as you would get from an annuity.

When you are much older, you may at some point wish to 'underwrite' your longevity by turning the remaining sum into an annuity.

okydoky

Thanks for this - from what I understand, if I did go down the "drawdown" road, I would need to wait until next April to include the protected rights portion, and I assume I would need to transfer my pensions to a single provider for drawdown, so would also incur the transfer reduction quoted on my Standard Life valuation figure?
Assume also that Drawdown is a once only decision - in other words once you go down this road there is no turning back?(other than when you decide to buy an annuity obviously).
What would happen if I decided to take up work at a future date and there was a pension aspect to it??
Many thanks

Loughton_Monkey

Forgive me, but I am not familiar with Standard Life's 'transfer reduction'. For most pensions, there is simply a single value, which at any one time can be transferred in full to another scheme, or to a SIPP, or be 'taken' as a lump sum plus annuity.

But yes, drawdown is black and white. Putting your funds into 'drawdown' is a magic moment of crystalisation and can only be done once. However, you do not have to draw down a single penny. In this case it will continue to 'grow' [depends on investments as usual] and later you can purchase a defined annuity. So in a case like this, having 'gone into drawdown' would turn out to be an academic and pointless activity anyway.

Actually, having a pension in drawdown is specifically not a problem if you work again. There could be two scenarios:

1. You decide to 'take' your pension, and turn it into an annuity. Now you find a job and go to work and contribute to an extra pension scheme. No problem whatsoever. But the only danger is that the combination of your pension annuity plus salary could take you to the 40% tax bracket.

2. Instead, you put your pension into drawdown and start taking an income [probably equivalent to an annuity]. Now you find a job. Well in this case, again, you can happily contribute to a new pension and also decide not to draw any down for a while - especially if it were to take you into 40% tax.

There is a scheme called "Flexible Drawdown" - only available if you have other secured pension income of £20K. Here, you could certainly get a new job, but would not be able to contribute to a new scheme. You could, however, put your drawdowns on hold while you didn't need them.

So in summary, putting a pension into drawdown gives you two positives: (a) It avoids for the moment any significant impact of having to take 'almost female' lower annuity rates, and (b) gives a very nice degree of flexibility to 'profile' the income around any future work income you may draw.

The 'negatives', as far as I can see, are that drawdown continues to give you the investment risk (and/or reward of course), and secondly either doesn't perform well if you live a long time [annuities 'underwrite' longevity]. This later disadvantage can be minimised by buying an annuity much later on, but you would then suffer the 'drop' in rates - albeit on a lower value.

okydoky

My Standard Life pension has a Market Value Reduction which would reduce transfer value by about £8K.
In all I have 4 pension pots with total of about £198K including £25K protected rights.
I am looking for drawdown of about £6Kpa so would I be better to forego any Tax Free Cash? I am prepared to do this as have other cash of about £150K to live on for years to come(hopefully!) with State Pension in 11 years time. My state pension projection looks OK with 30+ years contributions and forecast of about £8K pa incl serps etc.
Any observations/comments?

dunstonh

Thanks for this - from what I understand, if I did go down the "drawdown" road, I would need to wait until next April to include the protected rights portion, and I assume I would need to transfer my pensions to a single provider for drawdown, so would also incur the transfer reduction quoted on my Standard Life valuation figure?

protected rights can be placed in drawdown now. Although it is better to wait until 2012 when protected rights is abolished and you can then crystallise using non-protected rights rules.