Standard Life Annuity

WeaponX

My dad has received a letter from Standard Life for his annuity. It's about the New European ruling when it comes to working out the annuity and not taking gender into account and therefore see a decrease in income.

Any recommendations in what to do?

jem16

WeaponX wrote: »

Any recommendations in what to do?

In relation to what? Taking it now or later?

No matter what see an IFA. Never go with the pension provider's offer.

jamesd

Discuss with an IFA found via unbiased.co.uk and consider using income drawdown instead of buying an annuity. Income drawdown means leaving the money invested and taking an income from the investments.

The bigger decrease in income comes from buying an annuity at a time when annuity rates are quite low because of the low bank and government bond (gilt) rates, which are at record lows. That means that there are significant possible benefits from using income drawdown for a while and buying an annuity later, possibly in several chunks over ten to fifteen years.

CannySaver_2

Hi

Some thoughts as to what he might do:

1. Consider whether or not he actually needs the income at the moment, is he retired? Does he need to use his pension to create an income at the moment or in the near future? If not it is probably worth leaving the fund unvested, although a review of performance and charges might be useful

2. If he does want to take an income then the first thing to do is arrange to see an IFA, get a recommendation from friends or family, alternatively use www.unbiased.co.uk to find an IFa in your area specialising in retirement advice

3. Start doing some research prior to seeing the IFA, read one of the numerous retirement guides available online, use a pension annuity calculator to do some of your own annuity research

4. If your dad is looking for a guaranteed income for life with no investment risk then an annuity is the only option. Make sure he uses his open market option or OMO, which means he doesn't have to buy his annuity from Standard Life, get the IFA he uses to check whether he qualifies for an enhanced annuity due to poor health or lifestyle issues such as smoking or height / weight ratios and depending on the size of the fund get the IFA to haggle with the annuity provider and also see what you can do to get the IFA to reduce his or her commission. Also, ask them about working on a fee basis and rebating the commission

5. Whilst an annuity has no investment risk, there are other risks to it. Most people buy level annuities rather than including any form of index linking, this means the buying power will erode over time. Furthermore if you buy an annuity now you carry the risk that annuity rates will rise in the future (not by much and not soon in my humble opinion) and your dad will be left stranded with an annuity paying an uncompetitive return; once bought an annuity cannot be changed, except in very very unusual circumstances. One option round this is to use Income Drawdown, however this must be treated carefully, it is a very different product to an annuity in that it carries investment risk, requires regular reviews, which you may need to pay for, you do not benefit from mortality drag and your income could fall if the value of your fund reduces or due to outside interference as we have seen recently when the government changed the maximum income which could be taken from 120% of GAD to 100%. This change now means that the maximium income available from income drawdown plans is now broadly the same as an annuity. There are still reasons to consider income drawdown, for example more flexible options on your dad's death, the opportunity to lock into better annuity rates in the future if they do rise, the chance to have flexible income payments etc, however it is certainly a more complex area than an annuity and requires advice

6. Other options are available and a half way house between an annuity and income drawdown might be a fixed term annuity, which would provide your father with a guaranteed income for a number of years, generally between 3 and 10, with a guaranteed maturity value at the end which he can then use to buy another retirement income product or an annuity. These types of plans have been given a new lease of life over the past couple of years, are again more complex than an annuity, but are definitley worh considering.

I hope this helps, in a nutshell, consider your dad's needs and goals, see an IFA, do your own research, consider all options.

I hope this helps.

The Canny Saver