Changing Pension Companies

Mistral001

I am thinking of taking my pension I have built up over the years which has a £40k fund at the minute. I will get a £10k lump sum which will be very very useful and about £1250 annually from the annuity. I have discussed this with my financial advisor and he says that if I change the company I will get a better deal.

The compsnies he has suggested changing to are all well-established companies and the better rates vary from very slightly better for straight-forward fixed annuity to very much better for with-profits variable pension amount per year. The most favorable one is has a pension annual amount based on a present growth of 5%. It seems optimistic to assume that this will stay anywhere near this rate and it might seem very risky. There is a guaranteed minimum , but could be still risky since the minimum is only £950 per year

The IFA will get a commission I know and he has not been too pushy in trying to get me to change, however, I am still worried about changing.

Any advice would be welcome.

dunstonh

I have discussed this with my financial advisor and he says that if I change the company I will get a better deal.

That is the case most of the time, yes.

the better rates vary from very slightly better for straight-forward fixed annuity to very much better for with-profits variable pension amount per year.

The WP option is only a lot better if the investment returns meet assumptions and the annutiy rate is based on that assumption. If the assumption is unrealistic then the annuity rate will fall.

The most favorable one is has a pension annual amount based on a present growth of 5%. It seems optimistic to assume that this will stay anywhere near this rate and it might seem very risky. There is a guaranteed minimum , but could be still risky since the minimum is only £950 per year

5% is not unrealistic for probably one provider (there is probably only one viable provider in this field - in my opinion). However, for others it is on a largely obsolete contract and one I like to avoid.

The IFA will get a commission I know and he has not been too pushy in trying to get me to change, however, I am still worried about changing.

Have you had this discussion with the IFA? If you are worried then it suggests you are not suitable for investment backed options. Can you afford the volatility and periods when it WILL go down as well as up?

Risk will have periods when the risks do not pay off. Its like a house built on a flood plain. It may have a 1 in 30 year flood risk. You may live there 10 years and not have a problem. You may get 40 or 50 years. However, you could equally get 2 floods in two years. The thing is you know there is a risk and that at some point the risk event will happen but you dont know when that will be or how bad it is.

With a WP annuity, if you are lucky and get a number of good years at the start then it can work out nicely for you. If you get a bad year to start with (or early on) then it can work out poorly and take ages to make up for it. So, the main issue is can you afford the risk?

Mistral001

dunstonh wrote: »

5% is not unrealistic for probably one provider (there is probably only one viable provider in this field - in my opinion). However, for others it is on a largely obsolete contract and one I like to avoid.

dunstonh

Thanks for the reply. I have just one query.

Obsolete? Why is this one company still offering it if others have apparently ditched it?

dunstonh

Obsolete? Why is this one company still offering it if others have apparently ditched it?

Most no longer offer it. There are a small number who still do. However, in my opinion, only one of those is viable but even there I am not convinced as they have toyed with selling their UK book in recent years and if that happens, you can expect bonus rates to be much lower.

Lewey_78

I agree with Dunstonh only one provider in this market. Such as annuity might offer better value in the longer term, but there is additional risk with this type of annuity.

Mistral001

Lewey_78 wrote: »

I agree with Dunstonh only one provider in this market. Such as annuity might offer better value in the longer term, but there is additional risk with this type of annuity.

Would that be the Pru?