Reasonable Charges?

jamesd

FatherAbraham wrote: »

Well, having to reduce one's income in retirement is in itself failure, if the goal is to have a steady income. Once one permits variability of income, then of course drawdown "wins", because total loss of capital can always be avoided.

With drawdown at 4% or 5% in the study and annuity purchase currently at about 3% in the UK, it's hardly going to be fair or reasonable to consider a drawdown income drop to 3% to be failure compared to annuity purchase because that's no worse than the annuity would have done.

I do agree that If a level inflation-adjusted income is the objective, then falling below the annuity income level should be regarded as a failure compared to annuity purchase. Though if that measure is used, then it's also reasonable to set aside some of the higher more normal case income into a contingency pot to reflect the increased priority of stability over higher income.

sandsy wrote: »

Re. Withdrawal rates vs annuities, another consideration may be the relative mortality of annuitants vs those taking drawdown. On average, I'd expect drawdown folks to be a self-selecting group with better life expectancy than the average annuitant.

That's interesting. Initially I'm inclined to expect those using drawdown to have better financial understanding and for that to select to higher intelligence which in turn tends to be correlated with longer life expectancy.

Then I consider enhanced annuities vs standard capped drawdown, where the enhanced annuity may pay out more than the GAD limit. The drawdown pots would tend to be of sizes that make a scheme pension that does use personal life expectancy an alternative, though, so the GAD limit might not push so much towards enhanced annuities as it otherwise could.

However, even with that I'm not sure you're right overall. That's because annuities should be more likely to be purchased by those who get a higher benefit from them by living longer. This effect does show up in the non-pension annuity market and results in lower incomes compared to pension annuities, though there's also less competition and that might have a larger effect.

gadgetmind

jamesd wrote: »

This effect does show up in the non-pension annuity market and results in lower incomes compared to pension annuities, though there's also less competition and that might have a larger effect.

Two things annoy me about purchased life annuities.

1) Lower payouts than pension annuities.
2) They don't count towards MIR for flexible. Where's the logic in that?