Moneywise: Guaranteed annuity rates: retirees rejecting £3 billion in pension guarantees

FatherAbraham

Nearly three in five over 55s are not accepting the guaranteed annuity rate (GAR) offered to them by their pension provider, with nine out of 10 of those taking the cash instead, according to the latest data from the financial watchdog the Financial Conduct Authority (FCA).

https://www.moneywise.co.uk/news/2018-09-10/guaranteed-annuity-rates-retirees-rejecting-3-billion-pension-guarantees

woolly_wombat

Interesting.

the vast majority (85%) are small pots (less than £10,000)

However:

larger pensions with a GAR are also being cashed in, with guarantees rejected on 35% of pensions worth more than £30,000.

I realise there are valid reasons for a, presumably minority, of people to reject a GAR, but 35% seems very high.

Who has been authorising these transfers I wonder?
.

peterbaker

woolly_wombat wrote: »

I realise there are valid reasons for a, presumably minority, of people to reject a GAR, but 35% seems very high.

Who has been authorising these transfers I wonder?

It won't be just GARs. There are the quite common guaranteed 4%pa fund increases, unknown future distributions of surplus estate within the nefarious with-profit funds, and A-Day protected tax free cash etitlements which get lost on transfer. Who authorises the transfers? The question is rather who monitors the transfer requests and reminds the punters of the guarantees they may be missing out on?

Early last week I was invited by Aviva to transfer out the best part of £30,000 (which actually might be £43,500 if their computer hasn't been reprogrammed to keep up with the latest 1st July 2018 extra final bonus distribution which none of the staff seem to know anything about).

Never mind that their system and their ignorant contact team staff might have allowed me to transfer out far too cheaply, they completely overlooked (twice even though the protected tax free cash had been mentione by me in a drawdown context) that I'd have lost the approximate 40% (versus normal 25%) tax free cash entitlement if I had transferred it to another provider! Plonkers :mad:

tacpot12

The article doesn't say what is happening to the cash that is being withdrawn. My own feeling is that many of the pensioners are shunning the GARs to invest the cash on their own account believing that they can match the GAR and leave more to their heirs.

kidmugsy

tacpot12 wrote: »

The article doesn't say what is happening to the cash that is being withdrawn. My own feeling is that many of the pensioners are shunning the GARs to invest the cash on their own account believing that they can match the GAR and leave more to their heirs.

Chumps: they should take the GARS and use part of the income to pay for insurance that would provide for their heirs.

Thrugelmir

tacpot12 wrote: »

My own feeling is that many of the pensioners are shunning the GARs to invest the cash on their own account believing that they can match the GAR and leave more to their heirs.

The never ending bull market syndrome........

don9999

Interesting point Kidmugsy.


I too, suspect that many (most?) of the people withdrawing their funds from defined-benefit schemes are doing so, so that when they die any remaining funds pass on to their family.


I guess the risk is all about 'when' you expect to die.


I DO see their logic.


Consider that I am to retire at 60 on a guaranteed payment of £30k pa. Am guessing the cash-out might be 20x, so £600k.
If I simply put that in a bank account and withdrew £30kpa, it would last 20 years.
(Of course, very simplistic because I am ignoring any increases in the pension payments, and ignoring any potential growth of funds in the bank. Am also ignoring option of 'investing' funds, and hence the vagaries of stockmarket performance).


'If' I died within 20 years, then there would be a sizeable fund to pass on.
If I survived beyond 20 years, then I'd have NO money to live off!


Per kidmugsy's suggestion, I wonder how much it would cost for a Life Assurance policy for an OAP between 60-80...... I will look into that.


In 'my' circumstance, I will be keeping the security of the guaranteed income from my pension, whilst I have the flexibility of sizeable AVC pots to do with what I wish, and pass on when the time comes :-)

bostonerimus

For small amounts there is some logic to taking the cash if it is being used to pay off debt, home improvements or buy a car. If the person is in ill health then the GAR also might be of less use and he utility of the lump sum might outweigh a small pension income.
For larger sums a GAR of 8% or 10% is hard to beat.

kidmugsy

don9999 wrote: »

I wonder how much it would cost for a Life Assurance policy for an OAP between 60-80......

You can buy Whole of Life Insurance. I'd buy only the kind where the premium is fixed from the beginning.

I don't have a link to a good writer on Whole of Life insurance, but I do have a link to the best writer on insurance that I have come across. Perhaps his calm rationality will help.

http://monevator.com/life-insurance-and-protection-a-primer-or-why-you-should-buy-renewable-term-life-cover-most-of-the-time/