Another View of Trying to Get Us Through Retirement Financially

JohnWinder

Some wise and kind government long ago has really put such a barrier in the way of people choosing to annuitise? Seems contrary to good financial management.

dunstonh

JohnWinder said:

Some wise and kind government long ago has really put such a barrier in the way of people choosing to annuitise? Seems contrary to good financial management.

There are no barriers to choosing an annuity.    Any barriers are pretty much the consumer's own view on the terms and perhaps their lack of knowledge on the available options that exist nowadays.  The media didn't help by effectively demonising annuities back in 2015 by focusing on drawdown without mentioning any of the changes that occurred to annuities at the same time.

Linton

JohnWinder said:

Some wise and kind government long ago has really put such a barrier in the way of people choosing to annuitise? Seems contrary to good financial management.

No - in the UK you normally annuitise directly from the pension pot without any withdrawal.  The annuity is then taxed as income in the same way as earnings.

Buying an annuity with taxed money is niche and I believe the products available are more limited and expensive.

NannaH

How about a partial annuity,  if you want/need say £10k a year extra guaranteed income, then annuitise the corresponding amount.
I can see us doing that in ten years at age 67 (if rates are good enough) we want/need £5k guaranteed income over and above our SPs and DH’s Military pension, I would hope that £100k would cover that and that we can use my Sipp to do it for tax efficiency/ to have a slightly more even income split.

dunstonh

How about a partial annuity,  if you want/need say £10k a year extra guaranteed income, then annuitise the corresponding amount.

That is a very popular option.  Often ensuring that your compulsory expenditure is covered by an annuity leaving your discretionary covered by drawdown.      The ideal scenario is to have as much as your spending needs as possible covered by "secure" income.  That could be state, scheme pension (e.g. DB) or annuity.

The only thing that has held it back for some over the recent years has been low annuity rates.  

Albermarle

I have mentioned my wife’s pension value rising and falling over the last 5 years and the value is now back at it’s original starting point.

Thinking more, it feels like what’s the point in arriving back at the same point from 5 years ago.
I am not into growing my pension fund which I am drawing down on. In fact mine and my wife’s planner shows a decline every year with expenditure partly offset by modest growth (3% p.a.).
But barring the last eleven months, there’s enough to see us through until we are 100 at least.
Again, I am not looking to grow our pension funds, just have enough money to see us through and wonder in our case if having our money invested in pension funds is right for us.
With above, the large fall in pension funds over the last year has made me think is there an alternative way through to get us through retirement financially?

You are looking at your pensions performance when we are somewhere near the bottom of the cycle. For bonds at least, if not equities. Therefore the 5 year performance figures are affected by this, so taking a snapshot view today is not maybe the best way. I am sure if you looked at the last 10 years it would look better,and hopefully the same in another 5 years time.  I think it is sensible for you to look at alternatives, like cash, annuities etc, but I would not base all future planning on the current level of your invested funds, which are probably at or near to a low point. 

LHW99

If you are thinking of an annuity, the consensus here is that an IFA can get the best deal / options, and as they would also have to look at your situation in the round, if they didn't think an annuity was right for you they would tell you. Could be worth trying.

MK62

Malthusian said:

MK62 said:

The OP hasn't talked about amounts, but I assume from other comments that the pot is relatively large (if it's enough to see the OP through to 100).....unfortunately there is no way to simply turn a substantial pension into cash, for subsequent depositing outside the pension, without incurring significant income tax.

Although you specified "for subsequent depositing outside the pension", it's worth noting that there's nothing stopping you investing in cash within a SIPP. There are deposit accounts paying 3%pa - for a five year fix. Easy access pays 0.85%. Naturally you have to deduct the SIPP's running costs from that.
It's still not a very good idea, particularly if the only reason for doing so is "my investments have only grown 2-2.5%pa more than the risk-free rate over the last five years in exchange for me clicking a button and doing nothing, even after a 10-15% correction".

The OP specifically stated "If we could transfer all our pension out into cash".......I was just pointing out the rather significant income tax exposure which would result from doing that.

There are always options to consider of course.....whether any meet the OP's desired goal of risk free with a 3% annual return until death is another matter........as is whether a 3% return on cash, until death, is actually risk free (inflation, as has been pointed out)

GSP

Albermarle said:

I have mentioned my wife’s pension value rising and falling over the last 5 years and the value is now back at it’s original starting point.

Thinking more, it feels like what’s the point in arriving back at the same point from 5 years ago.
I am not into growing my pension fund which I am drawing down on. In fact mine and my wife’s planner shows a decline every year with expenditure partly offset by modest growth (3% p.a.).
But barring the last eleven months, there’s enough to see us through until we are 100 at least.
Again, I am not looking to grow our pension funds, just have enough money to see us through and wonder in our case if having our money invested in pension funds is right for us.
With above, the large fall in pension funds over the last year has made me think is there an alternative way through to get us through retirement financially?

You are looking at your pensions performance when we are somewhere near the bottom of the cycle. For bonds at least, if not equities. Therefore the 5 year performance figures are affected by this, so taking a snapshot view today is not maybe the best way. I am sure if you looked at the last 10 years it would look better,and hopefully the same in another 5 years time.  I think it is sensible for you to look at alternatives, like cash, annuities etc, but I would not base all future planning on the current level of your invested funds, which are probably at or near to a low point. 

That’s interesting as this is probably the first post I have seen suggesting we have reached a low point. We could stay at that low point for sometime of course, but none the less.

In my review last year he said my withdrawals were sustainable. This year it has moved to being unsustainable without any increase in the amount being withdrawn.

In last year’s email exchange with my advisor, after his comment of sustainable I did acknowledge it had been a good year of growth, but also said one year should not be taken in isolation.

The picture obviously this time round is quite different, hence his caution which he is right to highlight.
But bearing in mind how things can change relatively quickly, should I be altering a strategy on a planner which goes out for another 40 years based on one year’s poor performance, as it ‘may, be likely to pick up again?

Albermarle

That’s interesting as this is probably the first post I have seen suggesting we have reached a low point. We could stay at that low point for sometime of course, but none the less.

I do not know that for sure of course, and there is a good possibility we might just drift along at this level or thereabouts for some time.

In my review last year he said my withdrawals were sustainable. This year it has moved to being unsustainable without any increase in the amount being withdrawn.

A sustainable withdrawal rate should be sustainable throughout the ups and downs of the market ( which are inevitable)

It can not be sustainable one year and then not the next, otherwise it is not sustainable ! So it sounds like strange advice. Although during a downturn many will reduce withdrawals, just to be on the safe side, but the idea of a sustainable withdrawal strategy is based around the fact that markets will go up and down on a regular basis.

So I think the answer to this question is No .But bearing in mind how things can change relatively quickly, should I be altering a strategy on a planner which goes out for another 40 years based on one year’s poor performance, as it ‘may, be likely to pick up again?

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