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MSE News: 'Second line of defence' for pension savers to be introduced
Comments
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Not if the 5.8% deferral rate has been calculated actuarially. If they've worked it out properly it should be cost neutral - we pay a larger amount for a smaller period - and we get the added cashflow bonus of having delayed payment on everyone, allowing us to pay down a bit of the National Debt and avoid interest payments
If it was indeed cost neutral, it means there is no point in deferring, because the pensioner gets the same overall.0 -
No she doesn't as not all of her income is coming from the state.If it was indeed cost neutral, it means there is no point in deferring, because the pensioner gets the same overall.
The two choices she has are standard SP plus small annuity every year until death or entirely funded by pension for first few years then bigger SP for a shorter time. The latter currently gets more overall money for the pensioner in most cases, but not at the expense of the state (if the state deferral rate is correctly calculated). The benefit to the pensioner comes from avoiding all the additional costs and profit wrapped up in the annuity.
Basically you are buying an annuity from the state rather than from a private company. The private company (or the company it buys reinsurance from) HAS to be very risk averse in its pricing as if it doesn't build in a healthy margin it could be wiped out by an unexpected increase in life expectancy. The state by contrast has a greater risk tolerance.0 -
If it was indeed cost neutral, it means there is no point in deferring, because the pensioner gets the same overall.
It doesnt follow as cost neutral to government isnt the same as benefit neutral to the private investor.....
- what is best for the investor will depend on income needs over time and what other sources of income are available.
- cost to government is different to cost to private investor. For example % tax gives the government automatically guaranteed inflation linked income at zero cost. Buying guaranteed inflation linked income is expensive for the private investor.0 -
gadgetmind wrote: »Reasons why I would -
Alas, I have no personal allowance left to play that kind of game, too much steady income stream already. All I can do is try to avoid higher rate tax by not drawing down too much each year.
I do want to use my CGT allowance more, though.
Some sort of accumulation fund would be good, that doesn't pay dividend. The unit value just goes up because all the returns are re-invested. When I sell the units, it's all gain, not income.0 -
Some sort of accumulation fund would be good, that doesn't pay dividend. The unit value just goes up because all the returns are re-invested. When I sell the units, it's all gain, not income.
Careful as even though the fund accumulates, the notional dividends still need declaring.
A close ended fund such as Personal Assets may suit as the dividends are very skinny, but you may also like to look at Zero Dividend Preference Shares. These got a bad rep in the past (for good reason!) but this was really down to naughty tricks by those providing them at the time rather than because "zeros" are a bad thing.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 -
Deferral increases are inheritable by a spouse (pages 31 onwards, rates on page 33):Sounds interesting as it could be used remove two of the disadvantages of deferring SP compared with taking an annuity - loss of spouse benefits and guarantee period.
100% of extra from basic state pension
50% of extra from graduated retirement benefit
50% of extra from state second pension
50-00% of extra from SERPS
There's also a cap on the total amount of additional state pension and this counts towards that cap for the recipient of the inherited benefit.
So roughly a 75% or so spousal benefit included in the deferral deal automatically.
I've previously done posts here showing the cost of term life assurance to provide an annuity-style guarantee. And to assure at least break even even in the case of dying before break even. It's cheap, a few Pounds a month, easily payable out of the increased income for those in normal good health who are good deferral candidates.
If say MSE was to put together an annuity beating deal article it would be easy enough to bundle these things together into a combined package with MSE getting revenue from the life insurance part of the deal. A term annuity could provide guaranteed income during the deferral period, again with some commission payable.
This is also the sort of package that a financial adviser could put together, improving outcomes for their customers while still making money.0 -
https://www.gov.uk/deferring-state-pension/tax-and-inheritance
This seems to say that the rules are changing and that if you reach SPA after April 2016 then the extra pension from deferral is no longer inheritable?0 -
Deferral increases are inheritable by a spouse (pages 31 onwards, rates on page 33):
100% of extra from basic state pension
50% of extra from graduated retirement benefit
50% of extra from state second pension
50-00% of extra from SERPS
Your reference is for the pre-2016 scheme.0 -
It can lose value.
So what? You're living off the income, and ITs are very good at creating rising income streams, and they have a revenue reserve to provide smoothing. The capital value will bounce around, so ignore it. If all you're interested in is the income, then go for something that generates this, and let your relatives worry about capital after you've kicked the bucket.
If not losing any capital value is important, look elsewhere, but those guarantees cost so you'll have less income.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 -
If you want a really simple example:
Mr Jones is entitled to state pension of £8k pa. He has a pension pot of £17k and the best value indexed annuity he can get is 3%.
His two options are:
1) Buy an annuity paying £510 pa and have £8510 indexed income for life.
2) Draw the pot at a rate of £8,500 a year for two years (Year two's money invested in cash until drawn to avoid all risk) whilst deferring his state pension. He then has an indexed income of £8,928 for the rest of his life.
It's very hard to see how option 1 isn't a mis-sale.
Note, this is using the post 2016 deferral rate. Pre 2016 it's even more glaring.
Am I missing something here?
£8510 index-linked income with a 2.5% increase each year would see the income at £8940 at the start of Year 3 which is when your 2 years deferred state pension would start which you say is £8928.
Isn't £8940 higher than £8928?
Now it's always possible that the annuity part doesn't see any increase (although last 4 years it's been 1.2%, 2.7%, 2.2% and 5.2%) in that 2 years but the state pension will rise by at least 2.5%.
Assuming no annuity increase the least that would be got is £8915 so £13pa less.0
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