How can I unlock my pension?

jamesd

Linton wrote: »

An annuity provides the only way of guaranteeing an income that matches inflation. No other investment product or strategy can do this.

That's not remotely close to being right. Start with index-linked gilts held to maturity in an income drawdown portfolio. Add index-linked corporate bonds. Move on to equities that do better than cash but may not fully compensate for high inflation. Add in options and warrants. Add forex futures contracts. Add more esoteric stuff as well.

Then compare with the typical 3% or 5% inflation cap on an annuity and you'll find that the annuity is more limited than many of the alternative ways of providing for truly high levels of inflation.

An annuity is easy, but with limits on protection.

Linton

jamesd wrote: »

That's not remotely close to being right. Start with index-linked gilts held to maturity in an income drawdown portfolio. Add index-linked corporate bonds. Move on to equities that do better than cash but may not fully compensate for high inflation. Add in options and warrants. Add forex futures contracts. Add more esoteric stuff as well.

Then compare with the typical 3% or 5% inflation cap on an annuity and you'll find that the annuity is more limited than many of the alternative ways of providing for truly high levels of inflation.

An annuity is easy, but with limits on protection.

Err index linked bonds will index your capital against inflation. That is very different from indexing your income against inflation. Try some examples on a spread sheet.

Annuities can be uncapped.

jamesd

You buy gilts maturing in 5, 6, 7,8,9,10,11 etc years. The capital on redemption is producing the income and does cause the income to adjust to reflect the inflation rate, because that's what has happened to the capital value of the redeemed gilt.

atush

JRRHartley wrote: »

DunstonH - Would you suggest I purchase an annuity? I can't see the benefit. Also, why are you against making residential property possible as part of a pension portfolio. Thanks.

I can't see the benefit of an annuity if you are worried about leaving money to your children.

And residential property isn't alloowed in a pension so Duns being against it isn't really important. What about commercial property?

fairleads

JRRHartley wrote: »

I have a pension with a fair amount invested. I am appalled at the cost of buying an annuity, drawdown levels are decreasing annually, not to mention the 55% tax when I pass my money on to my kids!

Does anyone have any ideas on this?

Only if you give more info such as value of the pot, income needed and relative ages.

JRRHartley

fairleads wrote: »

Only if you give more info such as value of the pot, income needed and relative ages.

My pension pot is in excess of £400k. I am looking to retire and cash in my pot sometime next year.

dunstonh

JRRHartley wrote: »

My pension pot is in excess of £400k. I am looking to retire and cash in my pot sometime next year.

You may be suited to phased drawdown then. That may well fit your tax objectives.

Linton

jamesd wrote: »

You buy gilts maturing in 5, 6, 7,8,9,10,11 etc years. The capital on redemption is producing the income and does cause the income to adjust to reflect the inflation rate, because that's what has happened to the capital value of the redeemed gilt.

Yes but that is merely protecting capital value. An index linked annuity would be much cheaper if you wanted to guarantee an index linked income for your lifetime.

To produce an inflation linked income in perpetuity you would need an infinite amount of investment now. Not income investing as I know it.

jamesd

Because the redemptions are what is providing the income it's also providing an index-linked income.

I agree that it's not particularly efficient for an individual, though not because you'd need an infinite number of gilts. Stopping at age 120 would probably be sufficient.

For an individual the problem is high variation in life end date. An annuity provider can average that over many annuitants and decrease the value of gilts maturing over time to reflect the decreasing living annuitant population. An individual can't but must instead purchase gilts of ever-increasing value until after their last credible death date.

Unlike an annuity provider an individual doesn't need a hard guarantee since an individual usually has flexibility in spending levels. That allows the use of more efficient investments than index-linked gilts, like equities and corporate bonds.

JRRHartley

Can I move my pension off-shore? Would this potentially open up my options with regards to purchasing residential property etc. Thanks.