pension annuity help

dunstonh

Since the OP's husband's priority is making sure his wife is left in the same position don't you think it odd the advisor doesn't seem to have mentioned drawdown though?

Perhaps the risk profile of the individual has been discussed and income drawdown has been ruled out as an option. No point discussing an option that is above the risk profile. Maybe comments about stability and guarantee of income have been commented on.

A 100% spouse option would also suit that goal and it doesnt always create such a big hit on the income.

Given that if husband did die young, wife would get return of pension fund minus 35% tax, plus a higher income to start with ( if wanted), whereas an annuity would pay a much lower income and the capital would be lost?

That is one benefit of drawdown. However, you havent mentioned what would happen if there was a stockmarket crash and 30% of the capital was lost and income had to be reduced to compensate and there isnt enough years left before age 75 to make the money up then forcing them to have a much lower income after that point.

There are too many paternalistic assumptions made about people's ability to cope with risk by industry people, including the regulator, IMHO.

And quite correctly so too. The general public seems quite happy taking risks in many things but when the risk doesnt pay off, they then go looking for someone to blame.

Most investoirs are not children. If you explain the risks and how to take steps to reduce them, most people grasp the idea quite quickly.

Most dont actually have a good knowledge of investing. You make an incorrect assumption if you think they do. Risks should always be explained and and understood and often you find with people in retirement is that they dont want to be taking risks at that time in life. Everyone is different but you make too many assumptions about the knowledge and understanding of the average person.

EdInvestor

That is one benefit of drawdown. However, you havent mentioned what would happen if there was a stockmarket crash and 30% of the capital was lost and income had to be reduced to compensate..

Shouldn't happen in a properly invested drawdown portfolio - that's a sign of an incorre3ct investment strategy.You said the other day you don't advise on drawdown much, so perhaps you don't have much experience of this area.

Most dont actually have a good knowledge of investing.

This is true.but investing is not rocket science.It is not hard to learn - especially if you know where to look for information.The internet has made it much easier.

The general public seems quite happy taking risks in many things but when the risk doesnt pay off, they then go looking for someone to blame.

That's not my experience.In most misselling cases the general public was exposed unknowingly to risks, and have a right to complain. Where people have taken risks that have not paid off (eg punting on tech stocks) they generally are willing to take responsibility for their actions.

Everyone is different but you make too many assumptions about the knowledge and understanding of the average person.

If people have arrived on this site, I'm not sure they should be classified as average.The vast majority of people we run across here are quite capable of grasping the issues if they are clearly explained and they are given the confidence to ask questions to clarify anything they don't understand.

I agree there are some people out there who just don't get money and investing very well, but I'd say they are quite a small minority on MSE.They may of course be a larger group in the general population but that's not relevant.

dunstonh

Shouldn't happen in a properly invested drawdown portfolio - that's a sign of an incorre3ct investment strategy.You said the other day you don't advise on drawdown much, so perhaps you don't have much experience of this area.

You dont give advice at all, perhaps you dont have much experience of this area.

One does have to consider your investment knowledge when you say a 30% drop couldnt occur in a portfolio. If you go too low risk you wont stand much chance of hitting the critical yield and can see the value drop. If you go too high, you increase the volatility of the portfolio.

That's not my experience.In most misselling cases the general public was exposed unknowingly to risks, and have a right to complain. Where people have taken risks that have not paid off (eg punting on tech stocks) they generally are willing to take responsibility for their actions.

If people are so willing to take responsibility for their actions, why do we see all these claims companies (and not just against financial services). If there is the chance to blame someone else, people are taking it.

If people have arrived on this site, I'm not sure they should be classified as average.The vast majority of people we run across here are quite capable of grasping the issues if they are clearly explained and they are given the confidence to ask questions to clarify anything they don't understand.

This site is hardly representative of the UK population. Most people dont even access the internet for this sort of thing. If you take out the regular posters here, most of the comments are from people who openly say they dont have a clue. Pointing those people towards higher risk or complicated options and telling them to go DIY when they dont know what they are doing is going to see some end up in positions of financial loss.

EdInvestor

]One does have to consider your investment knowledge when you say a 30% drop couldnt occur in a portfolio.

What I actually said was that your income would not need to be reduced if this happened if the portfolio was properly invested. Capital values of shares may drop but they usually recover later, as has happened over the last 5 years.Dividend income by contrast is usually stable, and usually rises long term.

Thus a share portfolio can be quite volatile while not affecting the investor's income at all.

Many people still hold privatisation and demutualisation shares from the Thatcher time and will have experienced this in recent years.The value of the shares may have been up and down like a yoyo, but the dividends (tax free if on basic rate ) keep plopping into the bank as normal, and most have gradually gone up.

It's not rocket science.Millions already know what I mean.

dunstonh

What I actually said was that your income would not need to be reduced if this happened if the portfolio was properly invested. Capital values of shares may drop but they usually recover later, as has happened over the last 5 years.Dividend income by contrast is usually stable, and usually rises long term.

A sensible portfolio has a good chance of maintaining the required income level. Its not guaranteed though and what happens if the crash occured when you are 73? You could see a 30% drop and not have time for it to recover before you hit 75 and forced to make a choice on what happens next.

EdInvestor

dunstonh wrote:

.... what happens if the crash occured when you are 73? You could see a 30% drop and not have time for it to recover before you hit 75 and forced to make a choice on what happens next.

No need to worry about this any longer, you can now continue in drawdown via ASP until you die.

Unless it's your PR money but that's for another thread :rolleyes:

dunstonh

No need to worry about this any longer, you can now continue in drawdown via ASP until you die.

And what if ASP doesnt exist or is modified (again)? What about penalties that get applied with ASP? upto 70% on death. Income is still only upto 90% of what is paid on the annuity. If you require maximum income, it may not be enough. So, it does matter that a crash/drop in value doesnt occur close to age 75. It could dramatically reduce your income post 75.

I will repeat at this point that I am not saying it shouldnt be done. Just giving a balance to some of the potential negatives that often get ignored.

EdInvestor

up to 70% on death.

You mean compared with the 100% confiscation you suffer on an annuity while still alive?

No contest IMHO.

dunstonh

You mean compared with the 100% confiscation you suffer on an annuity while still alive?

No contest IMHO.

Only able to draw upto 90% compared to annuity. The extra income paid over the years covers that.

Retirement planning is to provide for your retirement. Not to provide for the children and the Govt. Certainly, if you have sufficient income from other sources, then its an option.

If that crash occured just before 75 and your fund is 30% down, then your income at age 75 will drop as well.

The long and short of it is that drawdown has the potential to pay more over the years but also has the potential to pay less. Annuity purchase guarantees an income for life. The risk profile of the individual is what it should come down to and the ability to be able to afford a drop in income should it occur (in the case of drawdown).

EdInvestor

Only able to draw up to 90% compared to annuity. 10% extra paid for 10 years after covers that.

That assumes that the fund remains static for 10 years.But the whole point about drawdown is that the fund continues to rise in value over the long term, covering inflation.

Of course it's wonderful for the insurance industry to be handed hundreds of millions of poounds every year by annuitants so that the company benefits from the growth on excess capital - while the poor old annuitant get his money paid back to him (if he lives long enough) plus the gilt yield.:( Might as well leave the money in the bank - at least you'd still have the capital.

At least now people are beginning to wake up to how pathetic the annuity deal really is and in particular to its risks: because over 20 years, inflation will halve the value of that "guaranteed" income.

Indeed that's not a risk, it's a racing certainty.Like most guarantees, this one is not what it seems.