Budget pension changes not good for me

Proxy

coyrls wrote: »

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.

Yes, but not catastrophically bad. Value will drop mildly and for many people who worry about how to provide for themselves in much later life it will still be the right product for them.

Plus, look out for inevitable product innovation!

atush

paul5046 wrote: »

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.

As a former health scientist, I reckon you'd need to be quite knowledgeable to make an informed LE- to distinguish between lifestyle factors, genetic factors and danger factors (ie your job/lifestyle-hello men who ride motorcycles lol) and add those together in a cohesive way.

It is actually kinda like rocket science

Eric_the_half_a_bee

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.

If market rates for annuities don't reflect this apparently obvious fact, what has been stopping an annuity provider from arbitraging the inefficiency, offering slightly better than market rates to average income northeners, and making a fortune?

Proxy

Eric_the_half_a_bee wrote: »

If market rates for annuities don't reflect this apparently obvious fact, what has been stopping an annuity provider from arbitraging the inefficiency, offering slightly better than market rates to average income northeners, and making a fortune?

They do. It's called postcode pricing and is used by most major providers. But it's not perfect and can't pick out individual mortalities precisely. The risk still remains that better than average lives will choose annuities in the future (aka anti-selection), no matter how sophisticated the pricing basis.

Eric_the_half_a_bee

Ok. So we are talking about the difference between some fairly sophisticated but still imperfect pricing structures, and the anti-selection effect. This is likely to make annuities poorer value for those still interested in them, but the scale of this effect is unclear.

Weighed against this is the commercial imperative for more innovative and efficient products, given the huge reduction in demand and the more competitive resulting environment. This is likely to make annuities better value, but again the scale of the effect is unclear.

is it obvious which effect will be larger?

Proxy

Eric_the_half_a_bee wrote: »

Ok. So we are talking about the difference between some fairly sophisticated but still imperfect pricing structures, and the anti-selection effect. This is likely to make annuities poorer value for those still interested in them, but the scale of this effect is unclear.

Weighed against this is the commercial imperative for more innovative and efficient products, given the huge reduction in demand and the more competitive resulting environment. This is likely to make annuities better value, but again the scale of the effect is unclear.

is it obvious which effect will be larger?

Agreed. I would only suggest that competition does already exist and despite popular opinion, there isn't much scope for improving rates (at the top end of the market- leaving aside the companies which have obviously been getting away with below market value annuities for too long) given the risks and regulation/solvency requirements placed on the product. Innovation will happen but it may not be under the umbrella of a conventional annuity.

Eric_the_half_a_bee

Ok interesting, thanks. Goodnight

bmm78

Eric_the_half_a_bee wrote: »

Weighed against this is the commercial imperative for more innovative and efficient products, given the huge reduction in demand and the more competitive resulting environment. This is likely to make annuities better value, but again the scale of the effect is unclear.

The product innovation over recent years (and there has been plenty) has been met with a lukewarm response. Flexible annuities, asset-backed annuities and fixed term annuities have all struggled to gain traction in the UK market.

This may be (or at least has been) a UK issue, as so-called Third Way products have been much more popular in other countries. Lack of awareness in this country has been an obvious issue, but even when made aware people are often reluctant to buy into them.

Asset-backed products have a lot of merit in my opinion, particularly in the current economic environment. Some people are very reluctant to take any investment risk though, and are not willing to see their retirement income fluctuate.

Interesting to see how it develops, but there isn't going to be a super-product that covers every base. There is always a trade-off to any feature you add.

Joe_Bloggs

Perhaps cigarette manufacturers could tie in a deal with annuity providers and smokers via a cigarette coupon system. If you collect the coupons then you get to keep your annuity plus shorten your life.

If e-cigs and nicotine patches are in the frame then there is scope for recovering addicts ,changing behavior, living longer and messing with the alleged cotinine test and the financial basis of the enhanced annuity offer to chronic smokers.

J_B (A passive smoker at conception until I was 10 when my parents quit the habit.)