"New" income product for retirement?

dunstonh

This just sounds like a wrapper provided by a middleman that I'm sure will come with fees. I'll bet that these fees will be at the back of any literature in small print...maybe guarded by a leopard...and won't be insignificant.

It doesn't appear that way.  I haven't looked at their terms but they will be MIFIDII compliant and everyone is using the same disclosures.

The DIYer can do the same by setting up an appropriate asset allocation including guaranteed products like saving accounts, bond ladders held to maturity, SP, DB pensions and annuities. 

AFAIA, there are no DIY providers that allow the SP, DB or annuities to be retained within the pension wrapper.

LHW99

AFAIA, there are no DIY providers that allow the SP, DB or annuities to be retained within the pension wrapper.

Is there actually a necessity for that? Surely a DB could never be placed "into" another provider's wrapper.

I can sort of see some benefit if it is set up early, to capture the current increased annuity rates. But then again, if the amount one could have used for an annuity remains invested, there is a reasonable chance of the investment increasing to give a larger income from drawdown.

It would I suppose be useful if set up 3 or 4 years before needing to take the income, but over a longer timescale it feels to me that you are depending on a lot of unpredictable variables.

As FIREdreamer sid:

I annuitised about 70% of my drawdown pot with the remainder going into global ETFs like HMWO and VWRL.

Which would seem to result in a similar effect (particularly via an IFA) with the benefit that things such as annuity rates, income requirements and risk attitude at the time the income is actually needed can be better evaluated?

dunstonh

Is there actually a necessity for that? Surely a DB could never be placed "into" another provider's wrapper.

No. It was a direct response to a specific point.

I can sort of see some benefit if it is set up early, to capture the current increased annuity rates. But then again, if the amount one could have used for an annuity remains invested, there is a reasonable chance of the investment increasing to give a larger income from drawdown.

Would it?
If the annuity is replacing the bonds element of the portfolio (either partially or fully) then the yield is locked in and guaranteed.   That leaves the portfolio at 100% of what is left with some pound post averaging from the monthly income.

The modelling shown to us did show it to be viable.  However, not enough to make it a game changer and not enough to make up for the fact that Just is not currently doing very good annuity rates.

It would I suppose be useful if set up 3 or 4 years before needing to take the income, but over a longer timescale it feels to me that you are depending on a lot of unpredictable variables.

And having the defensive part of your portfolio giving a guaranteed yield for life could remove that.  However, everything on the drawdown is unpredictable.

Which would seem to result in a similar effect (particularly via an IFA) with the benefit that things such as annuity rates, income requirements and risk attitude at the time the income is actually needed can be better evaluated?

Very similar except the annuity is held on the platform and the annuity income paid to the cash account of the pension (so no income tax).    Then drawdown is set up, when needed, to draw from the cash account.

Bostonerimus1

dunstonh said:

This just sounds like a wrapper provided by a middleman that I'm sure will come with fees. I'll bet that these fees will be at the back of any literature in small print...maybe guarded by a leopard...and won't be insignificant.

It doesn't appear that way.  I haven't looked at their terms but they will be MIFIDII compliant and everyone is using the same disclosures.

The DIYer can do the same by setting up an appropriate asset allocation including guaranteed products like saving accounts, bond ladders held to maturity, SP, DB pensions and annuities. 

AFAIA, there are no DIY providers that allow the SP, DB or annuities to be retained within the pension wrapper.

By wrapper I meant "all in one product".

Being compliant with financial regulations does not necessarily make it value for money. I would be interested in the fees associated with this product and the structure. My point is that by using separate income sources like SP, DB and annuities as part of a retirement asset allocation the DIYer can do what this product is advertising at what I imagine will be a far lower cost. Every layer of administration puts people further from their money and adds cost.  But let's see the details before digging ourselves in too firmly.

LHW99

Bostonerimus1 said:

dunstonh said:

This just sounds like a wrapper provided by a middleman that I'm sure will come with fees. I'll bet that these fees will be at the back of any literature in small print...maybe guarded by a leopard...and won't be insignificant.

It doesn't appear that way.  I haven't looked at their terms but they will be MIFIDII compliant and everyone is using the same disclosures.

The DIYer can do the same by setting up an appropriate asset allocation including guaranteed products like saving accounts, bond ladders held to maturity, SP, DB pensions and annuities. 

AFAIA, there are no DIY providers that allow the SP, DB or annuities to be retained within the pension wrapper.

By wrapper I meant "all in one product".

Being compliant with financial regulations does not necessarily make it value for money. I would be interested in the fees associated with this product and the structure. My point is that by using separate income sources like SP, DB and annuities as part of a retirement asset allocation the DIYer can do what this product is advertising at what I imagine will be a far lower cost. Every layer of administration puts people further from their money and adds cost.  But let's see the details before digging ourselves in too firmly.

I agree, and since an IFA could also set up that sort of structure, then I am not (yet) convinced that the advantage of keeping the annuity income within the pension until drawdown would provide a definitely better result than waiting to annuitise until ready to take an income (and hence older / less fit / improved annuity rate)

Bostonerimus1

LHW99 said:

Bostonerimus1 said:

dunstonh said:

This just sounds like a wrapper provided by a middleman that I'm sure will come with fees. I'll bet that these fees will be at the back of any literature in small print...maybe guarded by a leopard...and won't be insignificant.

It doesn't appear that way.  I haven't looked at their terms but they will be MIFIDII compliant and everyone is using the same disclosures.

The DIYer can do the same by setting up an appropriate asset allocation including guaranteed products like saving accounts, bond ladders held to maturity, SP, DB pensions and annuities. 

AFAIA, there are no DIY providers that allow the SP, DB or annuities to be retained within the pension wrapper.

By wrapper I meant "all in one product".

Being compliant with financial regulations does not necessarily make it value for money. I would be interested in the fees associated with this product and the structure. My point is that by using separate income sources like SP, DB and annuities as part of a retirement asset allocation the DIYer can do what this product is advertising at what I imagine will be a far lower cost. Every layer of administration puts people further from their money and adds cost.  But let's see the details before digging ourselves in too firmly.

I agree, and since an IFA could also set up that sort of structure, then I am not (yet) convinced that the advantage of keeping the annuity income within the pension until drawdown would provide a definitely better result than waiting to annuitise until ready to take an income (and hence older / less fit / improved annuity rate)

Yes, Just's Secure Lifetime Income is basically an annuity with a death benefit. Here is a quote from the press release"

"Sparrows added the solution combines market portfolios with a guaranteed income-producing asset, with analysis showing that this combination can “reduce sequence risk while allowing continued exposure to markets”.

Additionally, this approach can increase the sustainability of income while still allowing clients to access potential market growth.

Sparrows Capital head of adviser proposition John Bennett said: “This game changing proposition addresses a dearth of safe solutions to the decumulation dilemma."

This states some facts that are well known in retirement planning circles and partial annuitization is an obvious strategy. Maybe there is some utility in "lifestyling" with an annuity type product within a SIPP as people approach retirement, but the costs are rolled into the annuity and I would certainly not want to be restricted to a single annuity provider for the sake of convenience. My inclination would be to de-risk with cash and short term bonds and shop around for an annuity. 

Here is the literature from Just's website

https://www.justadviser.com/products/guaranteed-income-solutions/secure-lifetime-income/secure-lifetime-income-literature/

MK62

You can already do this with a gilt ladder within your SIPP........so probably not really the "game changer" it's portrayed as......the marketing blurb has all the right stuff in though....holistic, tax-efficient, secure, blah blah....

LHW99

I also wonder how this works in relation to passing on a pension to a beneficiary. With a standard drawdown fund, it doesn't (currently) have to be a spouse who is nominated in the expression of wishes, but can be a child or other person. Once an annuity has been purchased however, it appears that it can be paid to only self, or spouse if that type has been purchased, and it isn't currently possible to reverse the purchase and obtain a lump sum.

Is there some insurance policy included that ensures that there remains a death benefit of an amount equivalent to (purchase price - income paid to drawdown fund)? If not, it appears that there could be costs in both set-up and unwinding, as well as ongoing charges along the way.

I'm not saying this isn't a solution for some people, but it does sound more complicated (costly?) than keeping the different parts: annuity / equity / other separate.

This was an issue with the old life insurance / unit investment combined policies - they didn't do either job particularly well, although there were a few circumstances where they were appropriate.

Bostonerimus1

LHW99 said:

I also wonder how this works in relation to passing on a pension to a beneficiary. With a standard drawdown fund, it doesn't (currently) have to be a spouse who is nominated in the expression of wishes, but can be a child or other person. Once an annuity has been purchased however, it appears that it can be paid to only self, or spouse if that type has been purchased, and it isn't currently possible to reverse the purchase and obtain a lump sum.

Is there some insurance policy included that ensures that there remains a death benefit of an amount equivalent to (purchase price - income paid to drawdown fund)? If not, it appears that there could be costs in both set-up and unwinding, as well as ongoing charges along the way.

I'm not saying this isn't a solution for some people, but it does sound more complicated (costly?) than keeping the different parts: annuity / equity / other separate.

This was an issue with the old life insurance / unit investment combined policies - they didn't do either job particularly well, although there were a few circumstances where they were appropriate.

In the links I provided there is an example of how the death benefit is calculated. It is noteworthy that the Secure Life Time Income does not have an index linking option and is only single life. So I get the feeling this is just a way for an insurance company to sell very basic annuities, the underlying fees are going to be important and I'm not optimistic about those.

dunstonh

I agree, and since an IFA could also set up that sort of structure, then I am not (yet) convinced that the advantage of keeping the annuity income within the pension until drawdown would provide a definitely better result than waiting to annuitise until ready to take an income (and hence older / less fit / improved annuity rate)

Reducing life expectancy and health are drivers to increase the annuity rate.    However, rising interest rates are too and we are about to enter a phase of falling interest rates.

That is not the primary gain though.   Its about replacing bonds risk with security of yield and therefore allowing a bit more in equities.  The increase in equities will, over the long term, increase the capital value.   


nce an annuity has been purchased however, it appears that it can be paid to only self, or spouse if that type has been purchased, and it isn't currently possible to reverse the purchase and obtain a lump sum.No. Annuities do not have to go to spouses only.   The capital value remaining can go to a named beneficiary.   Although if the annuity is still within the pension wrapper, the capital value will become cash in the pension and can be passed on as beneficiary drawdown etc.

Is there some insurance policy included that ensures that there remains a death benefit of an amount equivalent to (purchase price - income paid to drawdown fund)? If not, it appears that there could be costs in both set-up and unwinding, as well as ongoing charges along the way.I doubt it as standard annuity death benefits should suffice.    There shouldn't be any ongoing charges on the annuity side.

I'm not saying this isn't a solution for some people, but it does sound more complicated (costly?) than keeping the different parts: annuity / equity / other separate.It shouldn't be costly.  The version I was looking at had the MPS charge at 0.18% (OCF, DFM & TC).  So, cheaper than VLS funds that cost 0.27%.     


This was an issue with the old life insurance / unit investment combined policies - they didn't do either job particularly well, although there were a few circumstances where they were appropriate.They did the job perfectly fine if set up correctly.    The problem wasn't the structure.  The problem was sales process.   When an endowment was set up, the agent could set the target growth rate to hit the sum assured.    The higher the target growth rate, the lower the premium.   So, agents could make theirs look cheaper by increasing the target growth rate.    I have seen endowments with target growths as low as 2.7% p.a. and as high as 13% per annum.     The former would hit target and give a surplus.   The latter would be way off track and give a shortfall.

I will state that I have not bought into this annuity replacing bonds method yet.  I see it as an interesting concept.  The figures in the modelling certainly showed it as a viable option and in most periods gave the best outcome.   However, the differences between using different defensive assets (cash, gilts, bonds, annuity etc) was too small to make it a game changer.    It does basically remove the short term risk issues.  i.e. last few years, cash has been best and bonds dire.   In the previous decade, cash was dire, and bonds were best.    An annuity would not have the income volatility and mortality gain gives it a better yield.   But its all about increasing equity content and assuming that equities will give a better outcome that bonds.