PURCHASED LIFE ANNUITIES - *WHY* MUST I PAY FAT FEES IN 'ADVICE' TO BE PERMITTED TO BUY SUCH ?

incus432

I certainly think there is going to be a lot more spending and splashing out by retired people who don't want to enrich HMRC's coffers after death.

AlanP_2

I am guessing with the likelihood that the SIPP/IHT rules will change soon, the risk/reward, die early/late, feeling of overall value will see annuities and PLAs getting used more and more from now on.

I certainly think there is going to be a lot more spending and splashing out by retired people who don't want to enrich HMRC's coffers after death.

I just can't see either of these outcomes personally.

If you want to leave an inheritance to your offspring then what is the advantage of either an annuity or drawdown and spend more than needed / planned?

Yes, you've avoided IHT but at what cost? Asking your offspring to pay 100% rather than 40% (+/- any relevant income tax) at a later date seems short-sighted and fool hardy to me.

There is a saying "don't let the tax tail wag the dog" this approach would be akin to cannibalism with the dog eating itself!

incus432

AlanP_2 said:

If you want to leave an inheritance to your offspring then what is the advantage of either an annuity or drawdown and spend more than needed / planned?

Yes, you've avoided IHT but at what cost? Asking your offspring to pay 100% rather than 40% (+/- any relevant income tax) at a later date seems short-sighted and fool hardy to me.

There is a saying "don't let the tax tail wag the dog" this approach would be akin to cannibalism with the dog eating itseIf

Don't agree at all. Previously passing on a SIPP was simple, now if it means dealing with IHT, it's just a big headache for the offspring.  Many in this position see their houses rising in value and with SIPPs on top do not want their children faced with the hassle of having to pay IHT bills before they can sort out the estate. In that scenario the balance of 'pass on some extra inheritance' vs 'enjoy it now' changes fundamentally.  The offspring still get plenty of inheritance. 

AlanP_2

incus432 said:

AlanP_2 said:

If you want to leave an inheritance to your offspring then what is the advantage of either an annuity or drawdown and spend more than needed / planned?

Yes, you've avoided IHT but at what cost? Asking your offspring to pay 100% rather than 40% (+/- any relevant income tax) at a later date seems short-sighted and fool hardy to me.

There is a saying "don't let the tax tail wag the dog" this approach would be akin to cannibalism with the dog eating itseIf

Don't agree at all. Previously passing on a SIPP was simple, now if it means dealing with IHT, it's just a big headache for the offspring.  Many in this position see their houses rising in value and with SIPPs on top do not want their children faced with the hassle of having to pay IHT bills before they can sort out the estate. In that scenario the balance of 'pass on some extra inheritance' vs 'enjoy it now' changes fundamentally.  The offspring still get plenty of inheritance. 

So why not take the extra income and pass it on as a gift then?

What is the advantage of spending it?

You could build up Cash ISA pots to cover the likely IHT, or some kind of life insurance cover.

Optimising the approach and minimising all / any tax is sensible but our objective is not to avoid tax but to enjoy retirement and if there is any money left when we go the kids will get some after paying any IHT due.

RogerPensionGuy

I think I understand tail wagging the dog.

I think these next good few decades we will see a generation of people expiring that possibly owned very expensive houses, savings, pensions etc etc and maybe no debts.

House prices will most likely be higher, personal tax bands held low, IHT not move much or at all, this will be helpful for revenue income and IHT will affect more estates and the HMRC income will ramp up very nicely I expect.

I know people who are downsizing and pulling out max TFLS from pensions to gift children cash/deposits and these children are getting mortgages of staggering sizes compared to their net income, plonk child care costs on as both parents working, well in my little head it all looks like a problem.

I always remember people saying happily (scoff scoff) that their house has gone up in value so much in a few years or maybe doubled in 8 or 10 years, what a wonderful situation, now downsizing and wolfing out max TFLS to help the younger generations feed this system and its all great, however IHT will now enjoy this party more and more.

I don't think the music has stopped, but I think the music is slowing down getting more quiet these next few years.

I woz possibly half planning to leave a SIPP a bit heavy for reasonable housekeeping, but if them changes do come in on April 2027 I think my housekeeping will adjust a bit.

Thankfully in my head I am not much paranoid about leaving a great estate/cash after my expiry and yes me children would certainly be happy to get a chunk as they have big old mortgage debt to net incomes.

I Think I feel less inhibited to spend in my head as I see IHT so low and the SIPP IHT changes have put the cream on the cake, maybe I will buy a new car that I don't really need or sit more towards the front of aircraft when I go on holidays, maybe I will replace my mobile phone every 6 months instead of 4 or 5 years, who knows how I will spend more, but I think I will up my spending.

AlanP_2

Fair points RPG becoming a spender can be difficult enough if you have been a longtime saver. Anything that helps avoid that "guilt" feeling is good in my opinion.

I wouldn't go so far as to spend just for the sake of it personally but we are all different and as for mobile phones, well I might not be quite as bad as Ludwig (if you watched that on BBC) but 4 or 5 year renewals sounds extravagant to me   

incus432

Yes it's a psychological shift to spending for me too- travelling business/first class, buying the best not the 'value' option, eating out more.

Bostonerimus1

UK pension reforms have liberalized the retirement income landscape. However, that also has dangers and people can make silly mistakes. So mandating advice in certain circumstances might well be a good thing for many people. But it will be frustrating for knowledgeable people and is open to abuse ending up as just an added fee and another way for the financial services industry to squeeze money from people. I'd like to see a Government scheme that gives free advice, but that won't happen because of all the usual vested interests.

In the US (where I am) the landscape is even more liberal. I can get quotes on annuities from any insurance company able to operate in my state using either pre tax or after tax money. In the first case the money would come from a tax deferred retirement account and the annuity payments would be taxed as income, in the second case the money has  already been taxed and the part of the annuity that is return of capital is not taxed and only amounts above that are taxed as income. Of course this also allows some insurance agencies to use high pressure sales techniques to sell dubious products to people, so it's not all great!

LHW99

Being in the intermediate position, where including the DC pensions would trigger IHT at second death, We probably will draw down more quickly than otherwise, and place the funds in ISA's. It won't avoid the IHT, but would avoid the faff for executors of having to deal with pension cos as well as the rest of the estate (splitting amounts to be paid etc), as well as possibly giving options to avoid (40%) income tax on the money.

gm0

On the rule. A black cat. In a dark room. Not there. 
There need not be a rule to find. 
In the shadow of the FCA regulation set.

The fact nobody will sell a product like this to you is the intersect of several separate and valid cost/risk business decisions by different actors.  The outcome suits or at least doesn't bother the FCA absent a rule..

1 By product co deciding (I do wholesale for everything or for a category). 

2 An adviser saying pension advice is FCA COB regulated.  I do that first in full. Always.  Then we can talk more specifics. No waiviers. No exceptions. My PI insurer insists.  Audited deliverables.  Makes talking to them expensive out of the gate.  Certainly hundreds for transfer farms.  More for relationship IFAs targeting HNW. More again for unwanted or perceived difficult potential clients.  Quoting to deter or put up with it profitably.

3 Other retail distribution players who *could* retail a thing alongside other consumer DIY stuff think

- I don't do advice nor do I want to. 
- I won't retail that specialist low volume product there - which already smells like FCA really think it needs advice. 
- Or they may decide it needed product rules or extra stuff at point of sale that I haven't done later. 
- How many are there. Not many. So let's not bother then. Just a risk reward decision. Not in the catalogue. Or restricted to distribution model.

There need be no rule for the difficult niche low volume product categories.
There doesn't need to be one.  Deterrence and complexity is enough.

Nudging the market towards "indirect distribution" of edge case and complex products - because compliance is hard and subject to interventions and reinterpretation sorry - clarifications - of vaguer rules retrospectively. 
You *should* have done this. This was now misselling. 

Apparently improves consumer protection via deterrence.

De facto a default method emerges to access certain perceived as more risky or difficult edge case things and a layer of consumer compliance nonsense surrounds it. Regulated COB advice. Solves it for several of the actors as a risk problem.  At externalised to consumer cost. 

There is no rule where we explicitly wrote that down. 

This is the penumbra - the shadow of the FCA conduct of business and other regulations. It deters without defining.
People don't venture into it incautiously. 

It is a typical and utterly brilliant UK civil service office of circumlocution solution. 

You don't make a thing COMPULSORY. People hate that.

By multiple steps although not banned - it is de facto only possible in practice to get it a certain way. Oh dear. 
How sad.  Never mind.  An odd market quirk would you not say. 
Businesses made their own decisions. Not us. No.

Would it improve consumer protection for ALL consumers to force direct selling of this thing again with no other issues.  Likely no.  So I won't be doing that then.   Take a risk.  What kind of civil servant do you think I am.  The cheek.  And its such a small issue to be way down the list of priorities.  Item 1475 in a list of consultation responses on a low priority thing - from an angry consumer forced to pay for advice they didn't want. To be protected from something they don't see as a problem in the first place - which may be true for their case - though not necessarily so for all possible buyers. We need to consider all not just you. Off into the low priority swamp of further consideration despair you go.  No further action.

It's perfect.  There is no explict ban.  An emergent market quirk. 
Externalised to consumer costs. 

But one small thing but the pattern exists.  

You could vote to change it but who for - beats me.