Budget pension changes not good for me

coyrls

paul5046 wrote: »

According to the IFS this is what might happen. At the moment most people have to buy an annuity so the annuity market has some people who will live a long time, and some who will live a short time. Some will lose insurance companies money (those who live long lives) and some will make them money. With the new rules, people who think they may die soon, or are in poor health, will be tempted to take all the money as cash. That leaves those who expect to live a long time, as a larger percentage of annuity holders. Therefore the effect will be to push down annuity rates as insurance companies try to redress the balance.

I know but I think the logic is flawed. People who thought they were in poor health should already have been excluded from the general annuity market because they could get enhanced annuities. Outside those who qualify for enhanced annuties, I don't know how anybody is able to make an accurate judgement about how long they are likely to live, so I can't see how there will be an increase the the percentage of those taking annuities who live a long time. My point is more around the loss of economies of scale as I mentioned above.

p00hsticks

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.

They only want your money if they think there is something for themselves from it. As other posters have pointed out, giving the consumer the choice of an annuity or not is now likely to twist the market.

Those with relatively short life expectancy post retirement are less likely to go for an annuity now they have a choice, and in the past it's those who have effectively been subsidising those with annuities who live longer.

As the average life expectancy of people with annuities goes up, so the monthly/annual payout from those annuities is likely to go down.

bmm78

charliehell wrote: »

I'm sure if I was determined I could fool them..but this is immaterial now since the need for an annuity has been removed..

:beer:

It was removed in 2006

kidmugsy

charliehell wrote: »

I'm sure if I was determined I could fool them.

You might have to be a bit smarter than you have been so far though.

atush

chucknorris wrote: »

Will his medical records back that smoking claim up though?

They do blood tests that show if someone is a smoker

Proxy

coyrls wrote: »

I know but I think the logic is flawed. People who thought they were in poor health should already have been excluded from the general annuity market because they could get enhanced annuities. Outside those who qualify for enhanced annuties, I don't know how anybody is able to make an accurate judgement about how long they are likely to live, so I can't see how there will be an increase the the percentage of those taking annuities who live a long time. My point is more around the loss of economies of scale as I mentioned above.

It isn't as simple as a poor health/super healthy split. There are shades of grey.

People who qualify for enhanced annuities won't go for standard annuities, but they never did (or at least, not on purpose)

The purchased life annuity market is an ideal comparison. PLA rates are lower than conventional annuities, because the people who purchase them have reason to believe their life expectancy is longer than others. And they're usually right.

coyrls

Proxy wrote: »

It isn't as simple as a poor health/super healthy split. There are shades of grey.

People who qualify for enhanced annuities won't go for standard annuities, but they never did (or at least, not on purpose)

The purchased life annuity market is an ideal comparison. PLA rates are lower than conventional annuities, because the people who purchase them have reason to believe their life expectancy is longer than others. And they're usually right.

We'd need the average life expectancy from conventional annuities and purchased life annuities to verify that. It could just be that the purchased life annuity market is smaller and so doesn't benefit from the same economies of scale (has a higher overhead). I have difficulty accepting that people are able to judge their life expectancy accurately. They might believe that they will live longer but we would need the data to see if they were right.

Proxy

coyrls wrote: »

We'd need the average life expectancy from conventional annuities and purchased life annuities to verify that. It could just be that the purchased life annuity market is smaller and so doesn't benefit from the same economies of scale (has a higher overhead). I have difficulty accepting that people are able to judge their life expectancy accurately. They might believe that they will live longer but we would need the data to see if they were right.

I know what the average life expectancies are for each, you'll just have to trust me on that one. But it's no great leap of faith to suggest a rich Kensingtonite is more likely to have a longer life expectancy (on average, when pooled) than a equally healthy northerner on average income. And that the former will know it.

Economies of scale do not make a difference here, most PLA providers are PA providers and the fixed/variable costs are not treated independently.

paul5046

coyrls wrote: »

We'd need the average life expectancy from conventional annuities and purchased life annuities to verify that. It could just be that the purchased life annuity market is smaller and so doesn't benefit from the same economies of scale (has a higher overhead). I have difficulty accepting that people are able to judge their life expectancy accurately. They might believe that they will live longer but we would need the data to see if they were right.

I think you can make an informed judgement about life expectancy, about physical and mental health. Of course not 100%, but judgements can be made.

coyrls

Proxy wrote: »

I know what the average life expectancies are for each, you'll just have to trust me on that one. But it's no great leap of faith to suggest a rich Kensingtonite is more likely to have a longer life expectancy (on average, when pooled) than a equally healthy northerner on average income. And that the former will know it.

Economies of scale do not make a difference here, most PLA providers are PA providers and the fixed/variable costs are not treated independently.

OK, I'll trust you! So I am right to be worried that annuities could be more expensive as a result of the budget changes and that for me, with my retirement plan, the budget changes are not good.