Pension shock - can this be right?

FatherAbraham

AnotherJoe wrote: »

I think they could just tell you how much money you'd have as a lump sum without mentioning annuities that are such poor value no one but the terminally ill will buy.
And not use projections of future growth that make premium bonds look tempting.

A terminally-ill person doesn't buy an annuity, because an annuity ceases upon death. A healthy person buys an annuity, because it insures against outliving one's financial resources.

The general assertions here in this thread, that annuities are obviously "poor value" are rather peculiar - annuity costs are a genuine indicator of the expense of generating reliable income from an asset pot, however one does it.

Drawdown is not a silver bullet which will solve all of a retiree's income-generation problems through the magic power of wishful thinking.

Low yield on gilts underlying annuities cause the price of other financial assets to rise, and their yields to fall too. In that sense, annuity rates are an excellent barometer of the headwinds we face (sorry, mixed metaphor).

Complaining about annuity rates has been the fashion for at least a hundred and fifty years, even in progress where retrospect shows that it would have been an excellent strategy.

Annuity rates are what they are, and will always be so. One can hardly criticize those who don't understand pension-projection statements as unintelligent, and then expect them to successfully operate a demanding and far more dangerous drawdown strategy.

pennystretcher

Silvertabby wrote: »

- - - Before Pension Freedoms, we had people opting out/transferring out of the LGPS because private pension schemes were 'paying' far more than we were.- - -

:doh: :wall: Really? I have a feeling they are regretting it now...or will regret it when the retirement age comes... :eek:

AnotherJoe

pennystretcher wrote: »

:doh: :wall: Really? I have a feeling they are regretting it now...or will regret it when the retirement age comes... :eek:

No doubt there's a compo train running in that already. And probably with good cause in some cases. Easy to bamboozle with all the complexities plus the rubbish forecasts discussed here.

Brains64

Malthusian wrote: »

An example of the kind of "gobbledygook" you get in the standard text of a pension illustration is as follows:

How could this be made more "transparent" without losing any meaning? Replace "income" with "money you done get paid and you buy stuff and then next month we give more money"?

They can't say "and this would be really crap value so you probably shouldn't actually do this, so look into how much you could sustainably draw via drawdown" because that's advice.

Also no-one is accusing anyone of being thick and lazy. If you think something is wrong because you have misunderstood it, you should ask more knowledgeable people to explain how it actually works and that's what the OP did. That's what this forum is for.

On the other hand, if you did something drastic like cashing in the entire pension and putting it in your bank account, that would be thick. Because now you've screwed yourself and made your life significantly worse for no reason. The first person improves their knowledge, so they're not thick. The second person bones themself and their family through lack of knowledge, so they're very thick. And educating themselves would have taken about five minutes of Googling for a forum, asking a question and reading the answers, or ringing PensionWise or any one in the phone book under "IFA", so they're lazy as well.

Oh alright, good grief, relax...RELAX, in the words of John Bercow...calm yourself, I was just having a bit of a laugh, if I'd wanted to say something REALLY serious I wouldn't have used a grinning smillie .

Malthusian

Terron wrote: »

I think it might help if four estimates were provided: [...]

b) a drawdown estimate based on a SWR

Can't be done. Sending out an annual statement with a drawdown illustration assuming a particular rate of income and referring to that as a "safe withdrawal rate" is advice.

Sending out an annual statement with a drawdown illustration next to an annuity illustration is also advice. Most people will assume that drawdown gives more income therefore it's better, regardless of what caveats you tack underneath.

The solution to people misunderstanding nonsensical figures is not more nonsensical figures.

[Deleted User]

FatherAbraham wrote: »

A terminally-ill person doesn't buy an annuity, because an annuity ceases upon death. A healthy person buys an annuity, because it insures against outliving one's financial resources.

The general assertions here in this thread, that annuities are obviously "poor value" are rather peculiar - annuity costs are a genuine indicator of the expense of generating reliable income from an asset pot, however one does it.

Drawdown is not a silver bullet which will solve all of a retiree's income-generation problems through the magic power of wishful thinking.

Low yield on gilts underlying annuities cause the price of other financial assets to rise, and their yields to fall too. In that sense, annuity rates are an excellent barometer of the headwinds we face (sorry, mixed metaphor).

Complaining about annuity rates has been the fashion for at least a hundred and fifty years, even in progress where retrospect shows that it would have been an excellent strategy.

Annuity rates are what they are, and will always be so. One can hardly criticize those who don't understand pension-projection statements as unintelligent, and then expect them to successfully operate a demanding and far more dangerous drawdown strategy.

Good point. Buying an annuity is a solid strategy, particularly for someone in the 80s or for someone short on DB income in retirement. And using annuities seems like the best approach for illustrating possible returns. Those who understand the meaning of pension value and have a withdrawal strategy don’t need a projection of monthly income. Those that don’t understand this should either read a book or get an annuity

mgdavid

seacaitch wrote: »

A lot of bright people have specific domain expertise that doesn't necessarily automatically transfer to or prepare them for other subject domains.

........

I read that as a polite way of saying one can be bright but lacking in common sense.
I agree!

Anonymous101

mgdavid wrote: »

I read that as a polite way of saying one can be bright but lacking in common sense.
I agree!

I agree with that statement but also there's often a case that some very intelligent and high income individually can be absolutely useless when it comes to personal finance.


I know a few people that earn close to or over £100k and still struggle towards the end of the month and wouldn't know how much they have saved for retirement. Crazy!

westv

Annuities may not be "poor value" but they are still almost the most expensive they have ever been.

dunstonh

With less people buying annuities, the cross subsidy pool has reduced further. And with those buying them usually doing so with an enhanced rate, then that also reduces the cross subisidy pool. Mortality gain is not what it used to be and will probably never return without forced annuitisation.