Standard Life Annuity Purchase Fund - What's Going On

HappyHarry

flaneurs_lobster said:

As someone who most here would consider "financially unsophisticated" this whole discussion gives me the fear.

I'm sitting on £400Ks-worth of deferred workplace pensions and I'm 6mths out from my 66th birthday and I have no real idea what I should do with that cash. 

Find a local IFA and speak with them.

Albermarle

flaneurs_lobster said:

As someone who most here would consider "financially unsophisticated" this whole discussion gives me the fear.

I'm sitting on £400Ks-worth of deferred workplace pensions and I'm 6mths out from my 66th birthday and I have no real idea what I should do with that cash. 

Maybe best to think that you would have a lot more fear if you only had £40K !

flaneurs_lobster

HappyHarry said:

flaneurs_lobster said:

As someone who most here would consider "financially unsophisticated" this whole discussion gives me the fear.

I'm sitting on £400Ks-worth of deferred workplace pensions and I'm 6mths out from my 66th birthday and I have no real idea what I should do with that cash. 

Find a local IFA and speak with them.

It's good advice (even if you are biased) . I've asked several of my friends and acquaintances for personal recommendations and have been met with mostly "no idea"s and a few horror stories about outright incompetence and sky-high fees.

flaneurs_lobster

Albermarle said:

flaneurs_lobster said:

As someone who most here would consider "financially unsophisticated" this whole discussion gives me the fear.

I'm sitting on £400Ks-worth of deferred workplace pensions and I'm 6mths out from my 66th birthday and I have no real idea what I should do with that cash. 

Maybe best to think that you would have a lot more fear if you only had £40K !

Of course, I'm just making the point that it is quite easy to end up in this situation if you have been less mindful of your impending retirement than you should have been. 

zagfles

flaneurs_lobster said:

As someone who most here would consider "financially unsophisticated" this whole discussion gives me the fear.

I'm sitting on £400Ks-worth of deferred workplace pensions and I'm 6mths out from my 66th birthday and I have no real idea what I should do with that cash. 

Pensionwise is probably best first call, and it's free https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

It's "guidance" rather than advice but could provide some basics which you could build on with your own research. Your workplace pension will probably also offer free at retirement guidance, it's well worth using both if available as getting two perspectives or even being told the same things twice can be useful so it sinks in, for stuff you're not familiar with.

If you decide on drawdown I think all workplace pensions offer "investment pathways" for drawdown, ie 4 or 5 investment strategies based on how you want to draw on your fund.

OldScientist

dunstonh said:

Even if annuities were classed as missold, it we look a the last 30 years, there are very few periods where inflation was high enough to make an index linked annuity better than level over their lifetime.

Annuity providers would price all annuity options based on what they would pay out over the life expectancy.     You would need a sustained period of inflation above the long term average for it to make a difference worth complaining about.    Typically, with inflation around 2.5%, an indexed annuity would take around 23-25 years to breakeven to a level.

Annuities bought in the late 90s or early 2000s on level basis are still likely to better than an inflation linked annuity due to the long period of below-average inflation. 

Unless you have a long life, its not likely to be make much difference.

I just took a recent quote for RPI vs level comparison for a 75 year old and modelled it at 5% p.a. RPI, the RPI quote would only have got to the level price at 86 and the cumulative amount paid out hit breakeven at 94.  If RPI settled at 3% p.a. it would take until age 92 to match the level and still would not have exceeded the cumulative amount paid by 106.

A level annuity bought in 1967 would have seen real income decline from the initial value fairly rapidly as plotted below.



From your calculations, I estimate that the payout rate for the RPI annuity was about 60% of that of the level one - in other words the income from the level annuity would have exceeded that of the RPI annuity only until 1974 (the first 7 years). Of course, this period was extreme (the worst in UK history). By the mid-80s (with a now 90yo client), the income would have been about 1/3 of that of the RPI annuity.

Of course, the early higher income means that drawdown from their portfolio would be less in the early years which means it would be better at supporting the later income. Alternatively, they would feel more confident in spending money early on when still in good health.

I'm curious - are there are regulations standardising how IFAs compare the effects of inflation on different annuity product (like there are/were standardised indicators on possible pension growth and income and, indeed, endowments)?

drlabman

Albermarle said:

drlabman said:

Thanks everyone.  That makes sense.  I just checked the value of my fund and it's gone down even since the annual report at the end April.

Now, if you were me, what would you do?  I've set my target retirement date for later this year but I don't really need the money from this pension (I have others).  Should I defer further in the hope that the fund recovers (it's only going one way at the moment)?  I guess that's like asking for next week's lottery numbers.

I am afraid that the key point here, is that if you did not intend to buy an annuity at the target retirement date, then you should not have been in an ' Annuity Purchase Fund' 

If you intended to drawdown from the fund ( or not take it at all for a few years) you should have been in a fund that was a mix of different types of investments, including equities ( shares). This would have also dropped in the last 18 months, but not by anywhere near as much.

As historically most people bought annuities with their pension pots, the default investment ( where the customer has not chosen anything specific) was based on buying an annuity. This has gradually changed as not many people buy annuities anymore, so your issue is a kind of legacy problem. Unfortunately you can really blame the pension provider ( although they in general could have been more pro active) as  monitoring  pension investments are the customers responsibility, although of course the majority have no clue about this area.

It is very unlikely that gilts/bonds will decline much further, and long term should produce a positive return, but probably will never fully recover recent losses.

That's a fair point, and I'm not trying to blame anyone, BTW, just trying to understand the situation as per my OP.  I realise I'd originally set my intended retirement age to 65, but when that arrived I decided to defer.  In my defence, the "investment" part of my pension (the part that's in Standard Life) was originally in a fund I chose about 13 years ago.  I can't remember the exact name of it, or the choices, but I think it was a "moderate risk" fund.  Now, at some point when I wasn't paying attention it was changed to the Annuity Purchase Fund.  It wasn't changed on my instruction and I don't recall receiving any communication from Standard Life at the time - certainly not by email but I'll need to look back through correspondence to see if it was in writing.  Apparently, if I want to know why it was changed I need to speak to Equiniti.