Lifetime annuity vs fixed term annuity

dunstonh

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%?

It is suitable for a small niche in the market but you pay for it in extra charges. With a bit of understanding and knowledge, you can usually avoid using it and have lower charges.

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?

I wouldnt quite consider it a failure option. However, I would think I have failed personally if I had got to the point where I had to use that. Although there are people out there, no matter how hard you try, are just not going to understand. And if they don't want to understand, they are not going to worry about the extra cost of that option.

last time I used it was in the early 2000s in a previous form when the charge was 1% including adviser remuneration. It was good value back then.

bostonerimus

I agree with dunstonh about the cost of the PruFund you mentioned. The 5% projected gain is not guaranteed, but if the fees are quoted as 2% you can be sure you’ll have to pay those.

You also are paying fees if you get any type of annuity, they are baked into the product and the income you’ll be able to draw. The payout rates in annuities right now make them hard to recommend for most people, especially if they have other guaranteed income sources like SP and DBs. If you live an average lifespan returns from a diversified portfolio would have to be well below historical averages for drawdown to give you a similar result to an annuity purchases today.

Franz5

Obviously a man with knowledge and experience - thank you (I’m changing my mind again) which is important as the FTA is not “changeable” and the DD is (I think).
What’s your opinion of another one I’ve heard of from LV - the Flexible Gurantee Funds? I haven’t gone into it but it was suggested as a “less costly” option.

dunstonh

Obviously a man with knowledge and experience - thank you (I’m changing my mind again) which is important as the FTA is not “changeable” and the DD is (I think).

Drawdown gives ultimate flexibility. Whilst it is not quite as simple as a bank account, you can run in a similar way. i.e. fund is worth £x. You can take a regular fixed income from it. Or ad-hoc lump sums or combination. You can stop those, start those, increase or decrease. Flexibility has never been better.

Annuity ties you in to decisions. It can give security but you may not need security. If you have a low draw rate requirement, then you can invest in a low risk way which is likely to only suffer lower levels of volatility. People in drawdown do no generally invest at the same level of risk as they do in the growth stage of their life. The more experienced investors may but the average consumer does not.

It is also quite common to use a combination of options. Get your compulsory spending covered by secure income (state pension and annuity or scheme pension) and then use drawdown to cover your discretionary spending.

What’s your opinion of another one I’ve heard of from LV - the Flexible Gurantee Funds? I haven’t gone into it but it was suggested as a “less costly” option.

Half way house that tries to be a bit of both but involves compromises to achieve that. It has a place but most would not go there.

Out of interest, what levels of charges do you think drawdown has? For an advised drawdown, the ongoing charge would be around 1.3% (sometimes less, sometimes more but that sort of ballpark for a decent cost firm. Platform on your value 0.25%. Fund charges around 0.40% and adviser charge 0.50%. That is 1.15% p.a. Most adviser platforms do not charge for drawdown. Charges could be lower than that or higher but that is the ballpark. I just put one in place this morning with a platform charge of 0.22%, funds 0.35% and adviser 0.50%. That is 1.07%. These figures are similar to those mentioned by the other advisers that contribute to this site. So, not at all unusual. However, there will be expensive ones out there too. Don't treat the expensive ones as a norm. You can phone around your local ones and filter out the expensive.

bostonerimus

dunstonh wrote: »

Out of interest, what levels of charges do you think drawdown has? For an advised drawdown, the ongoing charge would be around 1.3% (sometimes less, sometimes more but that sort of ballpark for a decent cost firm. Platform on your value 0.25%. Fund charges around 0.40% and adviser charge 0.50%. That is 1.15% p.a. Most adviser platforms do not charge for drawdown. Charges could be lower than that or higher but that is the ballpark. I just put one in place this morning with a platform charge of 0.22%, funds 0.35% and adviser 0.50%. That is 1.07%. These figures are similar to those mentioned by the other advisers that contribute to this site. So, not at all unusual. However, there will be expensive ones out there too. Don't treat the expensive ones as a norm. You can phone around your local ones and filter out the expensive.

The 1% fee example above is far better than the 2% with the Prufund. Giving 1% away is enormous when your initial drawdown might be 4% a year...it's not such an issue later on as your drawdown amount increases, but it should still be considered.

Franz5

I believe the charge quoted was 1.6% which included a .5% for the FA management charge.
Thinking about it now, the Flexi DD can be changed at a later date where the FTA can’t.
Although Flexi DD’s seem hard to compare as they aren’t on a like for like basis, I wonder where it’s best to go. Someone suggested a local FA but I wonder if a “national recognised” ones are competitive e.g. HL etc.
Where to go??

dunstonh

Although Flexi DD’s seem hard to compare as they aren’t on a like for like basis, I wonder where it’s best to go. Someone suggested a local FA but I wonder if a “national recognised” ones are competitive e.g. HL etc.

HL are not IFAs. Most IFA firms are localised firms with 1-4 advisers. The more regional/national you get, the less personal the service becomes (as staff turnover is higher as the employees usually want to be advisers in their own firms). So, maybe consider if you want the same adviser for the rest of your retirement or have a different one every few years.

The issue isnt really where but how much they cost. Some will appear damned greedy. Others good value. Quality of advice is less of a concern as most do the job well.

Franz5

Thanks for the comments - I’ve contacted a local’ish company for a discuss on Monday. It will be interesting what they say - maybe they won’t give any advice until I commit. Some companies do a “free initial discussion” so I’ll see what they say.
I’m expecting they’ll “recommend” a Flexi DD plan so I’ll focus on potential growth and charges.

dunstonh

Some companies do a “free initial discussion”

All do as a charge is not allowed to be levied until it has been disclosed to you and you have been given the opportunity to walk away. The first meeting is usually a concepts and ideas and greet and meet. A chance to see if there is a reason to proceed or not. Rare for any real advice to be given.

Franz5

So I can espect charges to be between 1.2 to 1.3% - do you think?