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New drawdown rules and what pensions companies will be compelled to do
Comments
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I think it would be reasonable in that instance to require transfer out in cash.
Agreed, as long as the transfer was done in a few hours/days rather than the current system where you're out of the market for several weeks.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.0 -
gadgetmind wrote: »I'm going to respond to their paper by saying that providers *must* be compelled to either provide the new fully-flexible drawdown or must provide a fast and free transfer in-specie to another provider.
Does this sound reasonable?
This is one of the areas that does not appear to have been thought through fully.
The principle should be that either or both the ceding and receiving scheme can charge for work involved in the transfer. This is reasonable. However, there also needs to be a reasonable cap on this to prevent people not being able to take advantage of the greater flexibility.I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation0 -
Interesting how proponents of the free market can so easily become fans of government compulsion!
I suspect that the pension companies will be become very active in devising new products to enable people to make best use of the new freedoms. It wont be in their interest to do otherwise.
I would say that the most important thing if this is to work is to frame the guidance in such a way as to try to legislate away most of the rights to claim mis-selling by people who make daft decisions. The fear of being sued seems to be the biggest drag preventing the pensions market being 'free'. I would suggest that it is this rather than the desire to make a big profit by selling an annuity which lies behind a large proportion of cases of not offering options beyond annuitisation.
Basically make everyone sign a document saying 'Yes I understand that average life expectancy is x but I might live longer, yes I agree that it is all my own fault if I run out of money because I didn't take the nice safe annuity, Yes I am taking responsibility for my own actions and will not attempt to blame everyone else for my own stupidity'. Or words to that effect.
Unfortunately I can't see it happening and I bet the ambulance chasers are already rubbing their hands with glee.0 -
yes I agree that it is all my own fault if I run out of money because I didn't take the nice safe annuity
But how is what's proposed any different in this regards from capped drawdown and flexible drawdown? All that's happened is that the Minimum Income Requirement will go from £20kpa to zero (or, if you prefer, the GAD rate has gone to 100% for capped drawdown!) so everyone can take what they want when they want.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.0 -
gadgetmind wrote: »But how is what's proposed any different in this regards from capped drawdown and flexible drawdown? All that's happened is that the Minimum Income Requirement will go from £20kpa to zero (or, if you prefer, the GAD rate has gone to 100% for capped drawdown!) so everyone can take what they want when they want.
It's different because under flexible drawdown you couldn't get down below the £20k pa and under capped you could pretty well never withdraw all of the fund as you were always limited to taking a percentage of the total.
Now it is entirely possible to take it all, blow it and end up with nothing.
Given that the providers are already terrified about misselling claims on the current rules they will be wetting themselves about the new rules unless something is done to give them protection and make people responsible for their own mistakes.0 -
In my experience Flexible Drawdown in practice has been more focused on redistribution of assets in the most tax-efficient way, or stripping out benefits from secondary pension pots while avoiding higher rate tax.
It is rarely used as a straight income producing vehicle, and even less rarely used to take out in one go and invest somewhere else.
The latter is the one that concerns me from people's first reactions to the budget, as there is a lot of talk of withdrawing the full fund to invest or finance BTL.
The financial objectives and sophistication of people in flexible drawdown are different from the "typical" consumer, who will generally have a greater need for an income stream, more likelihood of debt to repay, and less financial capability.
It may or may not be a disaster waiting to happen, but I don't think the Flexible Drawdown experience is representative of what is likely to happen with the mass market.I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation0 -
under capped you could pretty well never withdraw all of the fund as you were always limited to taking a percentage of the total.
You could if capped drawdown had a 100% "cap".
The point I'm making is that while more people are being given more flexibility, we're not moving into an area where legislation has never strayed before.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.0 -
It is rarely used as a straight income producing vehicle
I modelled this for my case (only personal pension pots) and the advanatges over capped drawdown were dubious, so I'm not really surprised.
I did look at this but only when looking at moving to a territory that didn't tax pensions as highly as in the UK.even less rarely used to take out in one go and invest somewhere else.
If that's the freedom want, then why shouldn't they have it?The latter is the one that concerns me from people's first reactions to the budget, as there is a lot of talk of withdrawing the full fund to invest or finance BTL.
Probably not, but why should pension providers need different disclaimers?It may or may not be a disaster waiting to happen, but I don't think the Flexible Drawdown experience is representative of what is likely to happen with the mass market.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.0 -
The average annuity was £23k plus £7k in cash. Given that you could cash out at £18k before then 80-90% of pots must have been under £50k. The government is probably as happy for some people to spend that money on cars and houses, gaining them tax up front, VAT, road tax, stamp duty etc than having people spend their £1-2k pa annuity money on food (no tax on food and within their tax allowances). The boost to people putting their money into pensions should help finances in the long term.
The main beneficiaries will be married women who have reasonably pension wealthy husbands who can now fill their boots from their husband's lump sum to ensure they will be using all their tax allowance for the two/three years they are likely to be younger than their husbands and short of their pensions.0 -
gadgetmind wrote: »
Probably not, but why should pension providers need different disclaimers?
Perhaps because they feel themselves so ill protected by the current ones, that many won't let anyone go the drawdown route with them unless they shell out for an IFA so that there is someone else to take the blame?0
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