Aviva Long Gilt S^ fund

tichtich

As I see it, the underlying problem here is that people were being put into (or encouraged to go into) long bonds at extremely low interest rates. This was a very poor risk/reward proposition: significant duration risk for very little reward.

It's been said here that the OP didn't lose out, because what he lost on the bonds he will gain on higher annuity rates (assuming he buys an annuity). But that just means he was locking himself into a lousy annuity rate instead of a lousy bond yield. The lousy annuity rates were the reason why people were opting for drawdown instead of annuities in that period. I wonder whether Aviva warned the OP that annuities were widely considered a poor choice, when he opted for a plan that was based on the assumption he would buy an annuity?

dunstonh

 I wonder whether Aviva warned the OP that annuities were widely considered a poor choice, when he opted for a plan that was based on the assumption he would buy an annuity?

Aviva doesn't hold the regulatory permissions to make that "warning".   That would fall under advice permissions.
It wouldn't be a bad choice had equities tanked by a 1 in 100 year style event.

it could come out with a range of lifestyle options to suit different methods (e.g. 25% TFC only).  The option to not use lifestyling already exists.  However, at the end of the day, its the investor or their adviser that makes the decision.  The provider cannot.

For the earlier point on volumes of annuities, according to the ABI, the monetary value of annuity sales rose 46% in 2023 over 2022 to their highest level since 2014.     The number of annuities rose 34% compared to 2022. The greatest volume since 2016.

tichtich

dunstonh said:

It always wouldn't be a bad choice had equities tanked by a 1 in 100 year style event.

I was comparing bonds with cash, not equities. The tiny yield on those bonds did not justify the duration risk compared with cash, in my opinion. That's why I myself kept cash instead of bonds... possibly the best investment decision I've made. (Not all my decisions have been so good!)

dunstonh

I was comparing bonds with cash, not equities. The tiny yield on those bonds did not justify the duration risk compared with cash, in my opinion.

Cash had tiny interest rates on it too for most of the last 16 years.   And despite the fall in gilts, if you had held them from 2011 or earlier to date, they would still have beaten cash (think upside down V).

I don't disagree with you when making a management decision.   That is the thing about making active decisions.    Aviva cannot do that, though (or any provider, as it's not Aviva-specific).

Altior

For the earlier point on volumes of annuities, according to the ABI, the monetary value of annuity sales rose 46% in 2023 over 2022 to their highest level since 2014.     The number of annuities rose 34% compared to 2022. The greatest volume since 2016.

This is the base effect though. A relatively high percentage increase to a very small (relative) base number. I don't see any viable conditions where annuities supersede drawdowns again. Very wealthy people might opt for, (or be advised to) opt for an annuity as part of an overall retirement portfolio. However the amount of people that would purchase an annuity with the majority of their pension fund will now always remain small, since far more flexible options are on the table.

tichtich

dunstonh said:

I don't disagree with you when making a management decision.   That is the thing about making active decisions.    Aviva cannot do that, though (or any provider, as it's not Aviva-specific).

Thanks for enlightening me about what lifestyle funds can and can't do. Do you think it's a problem that millions of people have their pension pots in funds that arguably don't have the flexibility to adapt to extreme circumstances, such as near-zero interest rates?

Hoenir

Altior said:

For the earlier point on volumes of annuities, according to the ABI, the monetary value of annuity sales rose 46% in 2023 over 2022 to their highest level since 2014.     The number of annuities rose 34% compared to 2022. The greatest volume since 2016.

This is the base effect though. A relatively high percentage increase to a very small (relative) base number. I don't see any viable conditions where annuities supersede drawdowns again. Very wealthy people might opt for, (or be advised to) opt for an annuity as part of an overall retirement portfolio. However the amount of people that would purchase an annuity with the majority of their pension fund will now always remain small, since far more flexible options are on the table.

Those flexible options are likely to be played out in far more volatile market conditions. I'd say there's many investors who are totally unprepared for what lies ahead. Markets were benign for an extended period of time. 

Altior

Those flexible options are likely to be played out in far more volatile market conditions. I'd say there's many investors who are totally unprepared for what lies ahead. Markets were benign for an extended period of time. 

What I'm arguing is that the situation that is actually happening needs to be reflected as the default. Not what actually happened over a decade ago. Whether what is actually happening is right or wrong is a different debate. Annuities will never be mandated again, and they will never be the default choice for the majority again.

Pensions are unique. I've come across a number of people anecdotally who are very switched on, both financially and in other areas. But when it comes to pensions, they simply zone out. The uniqueness must be related to the fact that they seem so far away for most people. I work in finance with smart people and I would guess if I asked 100 of them what funds their work pension was being invested in, 90 of them wouldn't be able to tell me.  

masonic

tichtich said:

dunstonh said:

I don't disagree with you when making a management decision.   That is the thing about making active decisions.    Aviva cannot do that, though (or any provider, as it's not Aviva-specific).

Thanks for enlightening me about what lifestyle funds can and can't do. Do you think it's a problem that millions of people have their pension pots in funds that arguably don't have the flexibility to adapt to extreme circumstances, such as near-zero interest rates?

I think the advice gap is quite widely acknowledged within the industry. It is a problem. Though it is easy to look back with hindsight and say those of us who sold our fixed interest holdings at the first sign of inflation were just doing what was obvious, I also thought it was a good idea to underweight the US market in the 2010s as it looked to terribly overvalued, but that turned out to be a mistake. An adviser is unlikely to make conviction bets on short term factors, and those posters with advisers who have posted about their consternation about losses from a bond heavy portfolio do not appear to have been advised to take action to avoid short term losses due to interest rate rises.

Hoenir

Altior said:

Those flexible options are likely to be played out in far more volatile market conditions. I'd say there's many investors who are totally unprepared for what lies ahead. Markets were benign for an extended period of time. 

What I'm arguing is that the situation that is actually happening needs to be reflected as the default. Not what actually happened over a decade ago. 

I'm looking forward after reflecting on an era that has recently past. There was always going to be a phase 2 of post GFC policy. Just a lot later than was envisaged.