Budget pension changes not good for me

coyrls

I know that everyone is getting excited about the pension budget changes but for my personal circumstances, I think I’m now in a worse position.

I plan to retire within the next 2 to 4 years and have built up pension and ISA savings. My intention on retirement was to buy an annuity with a portion of my pension fund to provide me with a guaranteed core income and to supplement that income from the remainder of my pension fund in flexible drawdown and from my ISA savings

After the budget and the anticipated flight from annuities, I can only see annuities becoming a more niche and more expensive product. I know I don’t have to buy an annuity but that was the case before the budget anyway. I like the guaranteed income aspect of an annuity and I am in the happy position where I wouldn’t have had to commit all my pension money to an annuity.

So from my position, I think I’m worse off after the budget, I think I will now have to commit more money to get the same annuity income or reduce my core guaranteed income or take more risk by not buying an annuity at all. I know people are talking about new products that will come to market but in a 2 to 4 year timescale it’s hard to anticipate and plan for what these products might be.

Eric_the_half_a_bee

coyrls wrote: »

After the budget and the anticipated flight from annuities, I can only see annuities becoming a more niche and more expensive product.

The usual relationship is, as the demand for a product falls, so does its price. If annuities follow that rule, they could become better value.

charliehell

Not necessarily, go for an enhanced annuity by lying about being a smoker, what they going to do - smell your breath before they sanction it?

:beer:

Proxy

Eric_the_half_a_bee wrote: »

The usual relationship is, as the demand for a product falls, so does its price. If annuities follow that rule, they could become better value.

Unlikely in this instance. The remaining people who want to purchase an annuity will have a greater life expectancy and thus the value is worse.

sandsy

It's very difficult to know what the annuity market is going to look like within the next 2-4 years.


I think the budget will accelerate the move towards all annuities being underwritten which would raise the risk of a deterioriation in annuity rates for healthy lives.


But we don't know where interest rates will go in that period - there are indications that they may increase.


I don't think we should rule out the possibility of new product developments either - it's not unfeasible that providers could come up with something that offers some of the security of an annuity but with more flexibility.


In general, I find it hard to believe anyone is worse off as the increased flexibility offered by the changes offers opportunities to more people to take advantage of tax planning, irrespective of the size of their pot.

kidmugsy

Maybe as the pension companies cut back on the purchases of gilts, gilt yields will rise and carry annuity rates with them. Anyway, since the point of annuities is to cover you for decades, what's the rush to buy one?

coyrls

kidmugsy wrote: »

Maybe as the pension companies cut back on the purchases of gilts, gilt yields will rise and carry annuity rates with them. Anyway, since the point of annuities is to cover you for decades, what's the rush to buy one?

Yes, you're right that is another option, I could postpone purchasing an annuity or a yet to be defined alternative product.

chucknorris

charliehell wrote: »

Not necessarily, go for an enhanced annuity by lying about being a smoker, what they going to do - smell your breath before they sanction it?

:beer:

Will his medical records back that smoking claim up though?

coyrls

chucknorris wrote: »

Will his medical records back that smoking claim up though?

No they won't.

Yorksport

coyrls wrote: »

I know that everyone is getting excited about the pension budget changes but for my personal circumstances, I think I’m now in a worse position.

I plan to retire within the next 2 to 4 years and have built up pension and ISA savings. My intention on retirement was to buy an annuity with a portion of my pension fund to provide me with a guaranteed core income and to supplement that income from the remainder of my pension fund in flexible drawdown and from my ISA savings

After the budget and the anticipated flight from annuities, I can only see annuities becoming a more niche and more expensive product. I know I don’t have to buy an annuity but that was the case before the budget anyway. I like the guaranteed income aspect of an annuity and I am in the happy position where I wouldn’t have had to commit all my pension money to an annuity.

So from my position, I think I’m worse off after the budget, I think I will now have to commit more money to get the same annuity income or reduce my core guaranteed income or take more risk by not buying an annuity at all. I know people are talking about new products that will come to market but in a 2 to 4 year timescale it’s hard to anticipate and plan for what these products might be.

I don't understand why you think annuities are likely to offer worse value in the future and I wouldn't start worrying about it. The insurance companies want your money and are always working on new ways to acquire it. For those who want a guaranteed income for the rest of their life - and that's most people - an annuity or similar product will be there. They are simply assurance products. Flexibility has to be the grown up option. Don't you love the politicians who think that they know better than you do what to do with your money. If they had to buy their own pensions they'd have a better understanding. It's a great innovation.

coyrls

Yorksport wrote: »

I don't understand why you think annuities are likely to offer worse value in the future and I wouldn't start worrying about it. The insurance companies want your money and are always working on new ways to acquire it. For those who want a guaranteed income for the rest of their life - and that's most people - an annuity or similar product will be there. They are simply assurance products. Flexibility has to be the grown up option. Don't you love the politicians who think that they know better than you do what to do with your money. If they had to buy their own pensions they'd have a better understanding. It's a great innovation.

You might be right about annuities. My logic for thinking that they would be likely to offer worse value in the future is that as the volume of money going into annuties is reduced, the economies of scale would also be reduced and hence the product would become more expensive.

I'm not convinced by the argument that only those who expect to live longer would buy annuities, as I don't know who these people are that are able to accurately estimate how long they will live. Those who know their life expectancies are short are already covered by enhanced annuities and so shouldn't (but I know some still are) be in the popualtion buying standard annuities anyway.