Just can't decide between Drawdown, lifetime or fixed term annuity!

Dazed_and_C0nfused

epsilon4900 said:

Thanks John, Unless I misunderstand you which is of course perfectly possible I think you are indicating some kind of altruism on my part if I chose the lifetime annuity and didn't last very long into it? Eg the company has more money to pay out to others but in all honesty I am considering the benefit/s of this for me? I'm sure that's not very altruistic of me but I regard these pots as for me as they all represent monies for which I worked hard albeit invested on my behalf?  I am not convinced about the inflation thing as it seems you get much too less to begin with only to increase later but no one can say you will live long enough to really benefit from that?

I can understand that sentiment however as a relatively young annuitant you could be getting the annuity for 40+ years.

And inflation will inevitably be a noticeable factor over that period.

gm0

Your attitude to advice going in makes finding the right individual critical if you go that route. 

You may want someone to help you choose and then implement chosen form of annuity,  or a drawdown setup, and leave you to it.  Transactional.  You don't have to learn enough about the options or tax code to create it. 
They do a job, at a point in time, for a fee.  But you have to run it thereafter.  Simple enough to look after may be a criteria if the discussion veered back towards drawdown.  Lifetime annuity is intrinsically simple. 
The price of "not learning" is the setup fee for the transactional advice.

Some latent suspicion is healthy.  Advisers are on a spectrum from very expensively shod wealth managers charging 4x the market price for the same sort of regulated pension setup advice i.e. a rip off or more politely a veblen good. Playing on people's sensibilities of feeling part of a wealthier mass affluent group than they actually are.  Who cares.  Some people evidently do or it would not work.  Then across the advice spectrum there are also people pursuing an honest trade so far as retail financial services ever is (i.e. competently, whole of market independent and at market price).  At the bottom end are cheaper advice farms leveraging qualified adviser time heaviy with cheaper admin staff doing file preparation.  More impersonal, less attention, (sometimes) cheaper fee caps, similar result.

In all cases providing a specific tax and pension legislation expertise to execute the FCA regulated process for pension advice for a wide range of consumers with diverse employment histories.

So the fact find - capacity and attitude to risk.  Goals.  Pension pots.  Tax. etc. Solution. Cashflow.  Critical yield calculation vs current.  All of which will be "suitable" and not incompetently executed. And "insured" for at least that. 

Nothing to say about performance of investments or outcomes, or the future on the drawdown side.  That's not part of the outcome though the carefully sales curated "perception" of financial advice seems to sustain this misunderstanding of what it does.  The idea that advice delivers better results.  All depends on the comparator.  And the version of DIY and Advice on each end of the seesaw.  If it was *better* they could underpin it.  And somebody would differentiate their offer competitively by doing so. It isn't.  They don't.  That is not what it does.

It is, inevitably, a spectrum story.  A performance distribution

Good DIY > Good advice > Average DIY > Average advice > Wealth Management > Bad DIY

Viewed as performance (income available) net of fees. Performance for you.  DIY "portfolio" for portfolio has an inbuilt advantage of 0.5% pa cumulative and the initial fee at the start. What each portfolio shape does is hostage to the future.   Avoiding making stupid mistakes and ending up on the right hand end is the challenge for would be DIY drawdown users.

But paying 2% to a wealth manager to match or even underperform what you can pay 0.2% for.  Is grating. 
(Good DIY vs Wealth management example).  In a world of long term returns in a ~5% space.  Losing 1.8% to other people's grubby fingers *seems* a lot - because it *is* a lot.  

0.5% pa is the proper fee for the job supporting you so you don't have to know how to do it. 
Check twice. Cut once.  Read all small print.  Sign nothing in haste.
And with annuity purchases you likely won't want or need ongoing advice.

Going to an adviser to buy an annuity could well be a good idea for the rate you obtain. Quirk of the market. And wholesale vs retail and regulation. 

Given an advisor has to do a regulated advice cycle anyway.  You could be "unsure" as to best approach and the quote for doing the transaction leading to one of the annuities may not vary that much if you do/do not discuss drawdown as well in the fact find and discussion. Closing this off prior to engaging may not be necessary to reduce cost.  Won't know until you get quotes.  There is a fixed cost of time and insurance to do regulated stuff - dominant over extra work to go through mainstream options on a simple file with you

Good luck finding your solution

xylophone

Did you see my post above?

dunstonh

DUNSTON H  That is an excellent point about the accumulation years. In fact all three pension plans ( which is one to which I have been contributing for a decade now after around a decade of it being dormant and the two other ones which to which I have not added for between 25 and 30 years ) have only gone up? Albeit sometimes very slowly and one has hardly gone up at all. The major thing which upset me was with the one to which I subscribe as they reduced their bonus in January and never bothered to tell me? Curiously the other one I have with the same company actually increased their bonus at the same time so it offset it to some degree. So what I am saying is that there really has not been that much turbulence over the years. Main gripe is with one that it's hardly risen at all.

If you take the last 7 years, equities have doubled but have zig zagged on the way.  Bonds are down slightly over that period and performed a bit like an upside down V.

I just also know I would have a HUGE problem trusting ANY financial adviser to whom I was going to pay a fee and also frankly to one if there were no fee and it was some kind of a commission thing. I would just find it hard to trust any full stop. I don't know how to avoid feeling they just look at me with dollar signs in their eyes? Is that so unfair of me! I wonder if it may be possible to get an annuity broker to agree to partially at least reimburse me for the commission they give to whomever?

FAs represent the company they are attached to.    IFAs represent you.  There are no commissions.  You pay an explicit fee.   So, for an IFA, it doesn't matter if company A or B or C is selected as you are paying the fee and its the same for the IFA regardless.   

You also get different business models.  You get the national or regional salesforces that exist to hoover up as much money as they can.  Often resembling the salesforces of old.   Or you have small independent local firms of 1-5 advisers that will happily do all sorts of transactions (one-off or ongoing)

If you go to an annuity broker, they will be on commission. That commission lowers the annuity rate. An IFA cannot take commission, and the annuity will be higher as it's on the nil commission rate. The IFA can be collected from the pension. If you get the IFA on a fixed fee and it's lower than the commission, then the IFA should give you a better outcome.

Brie

dunstonh said:

Annuity rates are currently at a 15 year high.     Taking out a fixed term annuity would need you to have poorer health or higher annuity rates to roll it over.     The cost of taking out multiple fixed term annuities needs to be considered as well.   You will be subject to commission deductions on DIY (often greater than the advice fee from advisers) and lifetime annuities pay once.  Fixed term pay with each purchase.

Sorry to hijack but can you explain this bit to me please?

coyrls

epsilon4900 said:

Thanks Marcon! Yes I have pretty much ruled out drawdown. I wish it felt right for me as others on these forums seem to do very well with it but I doubt I have either the skills or knowledge for it nor the interest in putting that sort of work in. That probably sounds very complacent but it is honest. I am 61 soon to be 62. I have three pension pots. I want to leave one alone for at least another 5 years as it is accruing steadily or has been. It has around 54 k in it at the moment and I don't contribute. Can't according to the rules as it has been paid up for too long? More than 25 years. All are direct contribution. I want to combine two to make a value of 58 k and take a tfls.  I do have some equity in a property so I could sell that if I needed to fund care and I have some separate savings too. I am thinking that over the next 5 years till OAP pension if I make it to 67 the extra amount of a fixed term annuity would be very welcome.

You have a total of £112K across three pensions.  You want to retire at 62 and you qualify for a state pension at 67.  You need to bridge the 5 years between 62 and 67 and then supplement your state pension from 67.  If pensions are your only source of funding, then it would seem that a fixed term annuity for 5 years followed by a lifetime annuity at 67 would be one solution, however you mention separate savings and they should also be factored into your plans.

Perhaps the IFAs on here could comment but I think your assets are at the low end of what would be required for an IFA to take you on.

dunstonh

Sorry to hijack but can you explain this bit to me please?

A lot of people buying fixed term annuities do so on the basis of buying another one each time they hit the maturity point.   So, at each rollover point, they get the terms on offer at that time.   The annuity rates could be higher at that time or they could be lower.  That is unknown.   

Higher annuity rates at that time, would work in their favour.    As could a decline in their health which qualifies them for an enhanced annuity rate.     In those scenarios, a fixed-term annuity could work out more favourably.

However, if annuity rates are lower and they don't qualify for enhanced annuity rates, then the new terms would not be as attractive.    In that scenario, a lifetime annuity could work out more favourably.

There is also some provider risk here.  There are very few providers that offer fixed-term annuities.   None of the providers give you confidence for being around for the long term.  Not for payment, that isn't the issue but whether they or the product itself will exist in the future.   i.e. when you get to maturity, will you even be able to buy another fixed-term annuity?

Bostonerimus1

Just a general point. It's not a binary decision between drawdown and an annuity. You can use some money to buy and annuity to give you a good guaranteed income - along with SP. Then you do drawdown with the rest and that gives you an income component with the potential to grow, but it might also fall which is why you have the guaranteed income component.

epsilon4900

Thanks ! Need to look in detail at these great postings later and will respond. Really appreciate the depth of your responses. Plenty of food for my thought!

epsilon4900

xylophone said:

Have you checked your state pension forecast?

https://www.gov.uk/check-state-pension

You could book a Pension Wise appointment for guidance on your options.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/book-a-free-pension-wise-appointment

Or, as it seems likely that you would be choosing the annuity route and other posts on the forum have indicated that a financial adviser 

might be able to get you a better rate than going DIY, it might be to your advantage to engage an IFA to look over all three pensions 

and find the best way forward for you?

You could try

https://adviserbook.co.uk/

Tick "confirmed independent" and other options as required.

Thanks. Only just seen this. Need to finish a piece of work in the next 90 m and then go out so responses are partial or brief at the minute. I do know my state pension forecast. I get the full new pension in 5 years all being well. Can't increase it. I have had a pensionwise appointment a year or possibly 18 months ago. I guess I could have another one. Couldn't hurt right? There appear to be differing views on if IFAs always do get you a better annuity rate? I know that is what I am supposed to believe but I am honestly not sure I am convinced about that. BUT even if it is true you have to factor in their fee right? I guess I either will or won't overcome my reluctance to seek and get advice from an IFA.