MSE News: 'Murky' pension practices to be tackled

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  • DiggerUK
    DiggerUK Posts: 4,992
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    dunstonh wrote: »
    ........The choice has never been wider.........
    All choices still chain pensioners to the same financial vultures, break that chain and the competitition for the pension pots would mean better deals for pensioners.
    Allowing total cash drawdown would guarantee better pensions by unleashing that competition.

    The choice is wider today than previously, but until the option to take all as a lump sum is granted, the monopoly of the usual vultures will continue.
    ..._
  • jamesd
    jamesd Posts: 26,103
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    edited 7 January 2014 at 1:25PM
    This is a devastatingly bad announcement if it happens: a person who has already purchased a lifetime annuity will be able to trade it in for another one after purchase, just they can remortgage their home loan now. As Money Marketing's story says:

    "Experts have warned pensions minister Steve Webb’s proposal to allow savers to switch providers after buying an annuity could see rates plummet by 25 per cent."

    What will be quite interesting is working out how they do it and have it make sense. That'll be hard because annuity payments increase as you get older, so those who sold the annuity at the younger age won't be able to subsidise the initial payout from anticipated future profits. So I assume that initial annuity rates will fall substantially.

    Allowing a few years of post-sale switching would be far more practical and would give people a second chance if they realise early on that they made a poor choice, were sold the wrong type of pension for their needs or become eligible for an enhanced annuity due to changes early on.
  • It will mean building optionality into the costs charged to the annuity purchaser which will mean a bigger slice of the pie goes to the provider as they take their cut on provision of that optionality i.e. exactly the opposite of what the minister (presumably) intended.
  • dunstonh
    dunstonh Posts: 116,040
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    All choices still chain pensioners to the same financial vultures

    There are over 27,000 options available on the LSE. How many tens of thousands does it need to become before you stop claiming there isnt enough choice?
    Allowing total cash drawdown would guarantee better pensions by unleashing that competition.

    Wouldnt make any difference as the same conventional options exist on pensions as they do on ISAs and unwrapped. That said, maybe if the person was willing to hand back the tax relief, gross roll up (where applicable) and the forgo the tax free growth and pay capital gains tax instead and forgo any right for means tested benefits, then maybe they should be allowed.
    The choice is wider today than previously, but until the option to take all as a lump sum is granted, the monopoly of the usual vultures will continue.

    I'm afraid you dont know the options and subject well enough to be making such statements. You are arguing for choice that already exists.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • dunstonh
    dunstonh Posts: 116,040
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    It will mean building optionality into the costs charged to the annuity purchaser which will mean a bigger slice of the pie goes to the provider as they take their cut on provision of that optionality i.e. exactly the opposite of what the minister (presumably) intended.

    Exactly. The annuity provider takes decades to make any real money on the average annuity. So, they would have to front end the profit.

    Plus, from an adviser point of view, I would be quids in. Every 5 or so years, I could charge a fee for redoing the annuity. That fee would typically come from the residual pot. So, financially, I would be better off.

    The suggestions also do not address what will happen when the reverse happens and we move from higher interest rates to lower ones. People used to a higher income would no longer get the lifetime benefit of that higher income but see their income go down. It is a big fear at the moment when it comes to recommending fixed term annuities that complaints will happen later if (or when) income drops. Hence why they are viewed as higher risk. The risk warnings and issues are greater.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • DiggerUK
    DiggerUK Posts: 4,992
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    dunstonh wrote: »
    There are over 27,000 options available on the LSE. How many tens of thousands does it need to become before you stop claiming there isnt enough choice............. You are arguing for choice that already exists.
    You are making a misleading claim.
    The 'choice' on offer amounts to little more than 27,000 shops selling the same shades of grey.

    There is no need to go off on a tangent about the tax free side to pensions and ISA's.
    The tax free aspect of ISA's is to encourage people to save or invest. Nobody is asked to repay any tax when taking out cash.
    Tax free aspect of pensions is, likewise, to entice people to put by for retirement.
    Having reached pensionable age, why do you object to people getting their hands on their pot. Is it not theirs?

    The total cash drawdown option denies the usual vultures automatic rights to mint it with OPM. Withdraw that automatic right of the vultures to swoop on the pot, and minds would be focused on giving better value to get the pensioners business.

    The electioneering guff on offer about being able to change providers is unworkable it seems. Give total rights to the pensioners, not the vultures.
    ..._
  • bigadaj
    bigadaj Posts: 11,531
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    DiggerUK wrote: »
    You are making a misleading claim.
    The 'choice' on offer amounts to little more than 27,000 shops selling the same shades of grey.

    There is no need to go off on a tangent about the tax free side to pensions and ISA's.
    The tax free aspect of ISA's is to encourage people to save or invest. Nobody is asked to repay any tax when taking out cash.
    Tax free aspect of pensions is, likewise, to entice people to put by for retirement.
    Having reached pensionable age, why do you object to people getting their hands on their pot. Is it not theirs?

    The total cash drawdown option denies the usual vultures automatic rights to mint it with OPM. Withdraw that automatic right of the vultures to swoop on the pot, and minds would be focused on giving better value to get the pensioners business.

    The electioneering guff on offer about being able to change providers is unworkable it seems. Give total rights to the pensioners, not the vultures.
    ..._

    I'm no supporter of the financial services industry but the rules are in place for a reason.

    Given the opportunity of a single huge lump sum, for many people the biggest amount they'd ever seen, then many would either blow it or certainly not invest it such that it could sustain them for many years.

    The tfls is available for most on 25% of the pot with restrictions on the remainder to ensure the state isn't lumbered, how would you stop people spending it and then claiming benefits? The current system does so by various controls, from total flexibility if you can demonstrate £20k income, through limits on drawdown, or conversely annuity if you so wish.

    These things aren't complicated but people do need to be educated more about their options, as it wouldn't take long to explain the basic choices and their pros and cons.
  • jamesd
    jamesd Posts: 26,103
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    edited 7 January 2014 at 4:39PM
    DiggerUK wrote: »
    The total cash drawdown option
    Already exists for those who have £20,000 of guaranteed income at any age after 55, those who get a prediction of being likely to die within a year or those who are willing to kill themselves.

    Already exists without flexible drawdown. Someone who is a higher rate tax payer can take out all of their own after tax money within a few years of reaching age 55, leaving just the money that wasn't ever going to be theirs if it didn't go into the pension. Takes a bit longer for basic rate tax payers but it can still be done before state pension age is reached.

    What gets subject to the restrictions by state pension age is just the money that wasn't the net cost incurred by the individual. Or for people who just choose not to take it out as fast as they can.
    DiggerUK wrote: »
    Having reached pensionable age, why do you object to people getting their hands on their pot. Is it not theirs?
    People already can get out all of their net cost by state pension age.

    What's left is not entirely theirs. A portion - or all of it if they have chosen to withdraw their own net contributions - is the tax relief and in exchange for that relief the deal is accepting some restrictions. If someone doesn't want the restrictions they shouldn't use a pension. The pension scheme trustees are responsible for ensuring that those rules are followed. If you don't want the restrictions, just stick the same net amount somewhere else instead.
    DiggerUK wrote: »
    Withdraw that automatic right of the vultures to swoop on the pot, and minds would be focused on giving better value to get the pensioners business.
    Nope, minds would be focused on exploiting the tax loophole of getting tax relief on the way in then being able to take it all out again, then repeat as rapidly as possible. Recycle in this way is already a standard suggestion that I make for those who qualify for flexible drawdown that does allow access to the whole pot, but that at least blocks making more pension contributions, to close the do it and repeat regularly hole.

    It'd be nice if you actually worked out what can be taken out by state pension age so you'd know that it already is possible to take out the whole net amount that a person has paid in as their out of pocket cost by then.
  • gadgetmind
    gadgetmind Posts: 11,130
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    jamesd wrote: »
    What's left is not entirely theirs. A portion - or all of it if they have chosen to withdraw what they paid in - is the tax relief

    If I pay in £100 by salary sacrifice, then that's £100 of *my* money that's gone into my pension. Yes, HMRC has agreed to not tax me on it, but it's 100% my money.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • jamesd
    jamesd Posts: 26,103
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    edited 7 January 2014 at 4:33PM
    How are you planning to dodge HMRC's claim that they are the legitimate owners of £40 of it if it's not paid into a pension with acceptance of pension restrictions on that 40% at least, a claim they are going to enforce by taking you to court and making you bankrupt if that's what it takes?

    It isn't all your money, at least 40% of it is tax relief provided to you only in exchange for accepting restrictions on the money. Getting out all you paid in of your own net cost is a pretty good deal.

    If you just want to dodge the pension restrictions and get all of the money, including all of the tax relief, then you can use VCTs instead and wait five years after buying. Give it time and you can get more than 100% tax relief on the deal and still get out the total pot, your money and the tax relief.
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