Lifetime annuity vs fixed term annuity

Albermarle

When you refer to drawdown, are referring to a drawdown within a fixed term annuity or drawdown with the pension still invested?

Drawdown ( or Flexi access drawdown ) means leaving your pension pot invested and then you take money from it when you need it . First 25% is tax free. There is an optimum % to take from the pot each year so it will last out .
The theory is that you will get better value from drawdown than an annuity , although there always some caveats . You might need some professional advice to do drawdown properly , if you are not that familiar with things financial .

dunstonh

y understanding is that I can go through an “agent” without any cost

No.

If you use an adviser, they can only charge a fee but not take any commission. The fee can be paid out of the pension.

If you use a non-advised service, they will take a commission which is paid for out of the pension fund.

My preference is aimed at trying to get out as much as possible without incurring the ongoing costs associated to DD which seems to aimed at growth.

Which is your priority? Saving money on charges or getting out as much as possible?

Franz5

Xylophone - yes both my wife and I have final salary pensions which have annual reviews. I have had advice from a FA who, apparently like many FA’s, recommend a Flexi DD product.
Albermarle - the recommended Flexi DD was a low risk invested fund which had slightly higher ongoing costs. The DD wasn’t based on a regular income and any gains were based on leaving monies in the invested fund growth. I appreciate no one knows how investments will grow in the future but when I input a similar income and details into the Hargreaves Landown calculator for DD with a conservative 3% increase - the suggested age the fund “could last” is very similar to the FTA. Hope this makes sense.
dunstanh - I am informed that the fees to arrange the FTA are paid by the Provider (e.g. Canada Life) and there are no ongoing costs.
My priorities are to receive an income (rather than leaving the funds and seeing them go up and down). No and very little risk and to withdraw as much as possible whilst I am fit and able to enjoy or do something with the money. The FTA also has the built-in dependence rule similar to DD just in case things go wrong. I understand FTA aren’t the most popular thing with FA’s seem to prioritise growth without a fixed income.
I’ve done some reading on the subject and there doesn’t seem to be a easy solution.
Is it as it seems - ‘One man's meat is another man's poison’.

dunstonh

dunstanh - I am informed that the fees to arrange the FTA are paid by the Provider (e.g. Canada Life) and there are no ongoing costs.

Whoever is telling you that is telling porkies.

westv

I think when they said "no on going costs" they probably meant no further deductions from the income figure provided. Obviously though that figure will already be net of costs.

dunstonh

westv wrote: »

I think when they said "no on going costs" they probably meant no further deductions from the income figure provided. Obviously though that figure will already be net of costs.

It was the first part that I was really referring to.

This bit: I am informed that the fees to arrange the FTA are paid by the Provider

That is clearly a lie. The commission paid by the provider to the non-advised distributor (which can also be a separate team in house) is reflected in the annuity rate. Effectively, the amount of the commission is deducted from the value of the fund which lowers the annuity rate.

This is why, for larger annuities (typically over £23k ish), using a commission based can be more expensive than a fee based one.

bostonerimus

Franz5 wrote: »

Xylophone - yes both my wife and I have final salary pensions which have annual reviews. I have had advice from a FA who, apparently like many FA’s, recommend a Flexi DD product.

I think that sounds like sensible advice. State and DB pensions give you and your wife an income foundation and then you can invest the rest of your money for drawdown and very probably leave something to your heirs.

Franz5

The main query for me is - do I go with a Fixed Term Annuity (no “visible” ongoing costs, no risk, low growth and maximum strip-out with built-in dependency pass-on) or the popular Flexi Drawdown (ongoing costs, some risk associated to the potential income and the obvious dependency pass-on).
One view is to avoid any risk, get out as much as possible (whilst able to enjoy it) and have the money where you want it rather than in an investment for your children. The Fixed Term Annuity has a lot of benefits but not the growth potential which includes an element of risk and ongoing costs.
Over the last 15 months I’ve seeen my funds go up and down and there’s the unknown with annuities as many predict a decline whilst others say they’ll increase. Who to talk to and who to trust? I’ve read reviews from both sides and now I’m interested in this forum - Flexi Drawdown OR Fixed Term Annuity? (Unbiased, non-advised and no comeback obviously).

dunstonh

One view is to avoid any risk, get out as much as possible (whilst able to enjoy it) and have the money where you want it rather than in an investment for your children.

And where are you going to place that money you have got out before you spend it?
Why not leave it in the pension and draw it when needed?

The Fixed Term Annuity has a lot of benefits but not the growth potential which includes an element of risk and ongoing costs.

Do you not have any money in a savings account? That charges more than a typical pension in drawdown. You cant see the charges on your savings account but there are present in implicit form. Do not let your misunderstanding of implicit charges and explicit charges dictate your retirement planning.

The commission on a non-advised annuity is around 3%. They factor around 1.5% p.a. as admin costs. They are priced against holding gilts. So, an annuity has higher implicit charges than the explicit charges on a drawdown contract. You are guaranteed to see a reduction in the value and you lose flexibility once you have made the purchase.

So, if you are letting charges dictate your purchase, an annuity is more expensive than a low cost drawdown arrangement.

Franz5

What’s you view on a “smoothed” Prufund Flexi Drawdown which seems to suggest a growth (EGR - I think) of around 5.1 to 5.5% less annual charges of around 2.1%?
If this is the “better option” in terms of what to do with a fund, are there any suggestions or preferences for where to go to get the best service or advice?