OAP with more than £200K

fenlander

Thanks again, for your continuing interest . No, we don`t have bank managers stuck out here in the fens, we have nice boys who , in the old days would have been clerks, but today are in charge of very small town branches. The one I am seeing on Monday is imported from Norwich so is a `superior` salesman !!!! However , yes homework I have done some , in the Telegraph Money, Sat June 25 , National Savings and Investments, are three Pensioner Bonds -series 28 , 1 year, max deposit £1m, rate 4.20% int paid monthly ; series 34, 2yrs, max the same, 4.25% , pd monthly ; and series 43, 5yrs, 4.25% same . Has anyone any experience of these please ? Annuities , showing what annual income for life £10,000 buys you, Female age 60 ( that`s me ) National Deposit FS4 level without guarantee (que?) £580.08pa , level guaranteed 5 yrs, £579.00pa , escalating 5%pa without guarantee £286.32pa and no price quoted for RPIlinked without guarantee . Does that mean that multiplied up dumping the whole lot in this National Deposit for 5 yrs would guarantee £579 x10x2 ? = £11.500 pa ?? and whilst we digest the above , yes of course I will report back on every word of wisdom ( or otherwise) uttered by the imported manager !!!

EdInvestor

Fenlander

If you're considering an annuity, look at the position for "Purchased Life Annuities".These are annuities you buy with cash, not with a pension fund.Their tax treatment is much better - you are not taxed on the portion of the income which is a return of your own capital. But even these are not brilliant for a 60 year old.

Index linked pension annuities are very bad value.It takes 23 years to recoup the lower income, if you should live so long. IMHO annuities in general should be avoided by women as the rates are so low. Because women live longer their annuity income will also be worse hit by inflation (current rates halve purchasing power in 20 years).It's a doubt whammy.:(

With an annuity of any kind you will lose your 200k savings.The five year guarantee means that if you die within 5 years of taking out the annuity your heirs get the capital back.But after that,it's gone forever. Fortunately, as of next year, annuities will stop being compulsory for pensions.


This site has plenty of useful info on annuities and alternatives:

http://www.annuitybureau.co.uk/tab/default.aspx

PS:What income do you need from the 200k?

dunstonh

Fortunately, as of next year, annuities will stop being compulsory for pensions.

Not strictly true.

The Pensions bill received Royal Assent last November but the move to change the age from which to buy an annuity was defeated 119 votes to 96. However, the Govt has indicated that it will review the annuity rules after Adair Turner's report into private pensions. That report is due Autumn this year.

In the meantime, there has been some relaxation on what you can do with a couple of new options. Hopefully, what we all want will come after the scheduled pension bill amendments (to correct the errors and loopholes already appearing). However, as it stands now, the vast majority of the public will be stuck with annuities.

margaretclare

Hi dunston

I'm still paying into a stakeholder up to my 75th b'day (10th August 2010). I started it because I reckoned that by the time we're 75 we'll be glad of a bit extra - the 25% tax-free lump sum might be used for our very last major holiday! However, I'm not too impressed with the remaining 75% being swept into yet another annuity. I'd be glad if you could clarify what you wrote above, about the age from which to buy an annuity?

Before you start saying it's pointless paying into a stakeholder at my age, I already have £5800 in there. I've tried equities but I just lose on them. The stakeholder is the only way I can see of getting 22% added to my contributions, and yes I know about SIPPs, but it would take a long time before I gained enough to offset the initial charges. The 22% I get from the taxman is instant!

Aunty Margaret

dunstonh

Before you start saying it's pointless paying into a stakeholder at my age, I already have £5800 in there.

I wouldnt say that. I do quite a lot of single premium stakeholders for those already retired.

and yes I know about SIPPs, but it would take a long time before I gained enough to offset the initial charges

Totally agree. The SIPP is not a mainstream product at this time. The charges, work and involvement with a SIPP does not suit the average person.

I'd be glad if you could clarify what you wrote above, about the age from which to buy an annuity?

The biggest drawback with pensions is the age 75 compulsion. You can keep paying into a pension but when you hit 75, you have to take the pension whether you want it or not. The currently involves buying an annuity.

Its probably easier for you to take a read of http://simplyfication.norwichunion.com/library/PN15548.pdf

It covers much of the latest changes and does note that changes are still going to happen so its really too early at this stage to say what you will up doing in 2010

EdInvestor

dunstonh wrote:

The Pensions bill received Royal Assent last November but the move to change the age from which to buy an annuity was defeated 119 votes to 96. However, the Govt has indicated that it will review the annuity rules after Adair Turner's report into private pensions. That report is due Autumn this year.

Eh?

Do you mean that all the complex arrangements about taking an income from the capital after the age of 75 have been dropped and an annuity is still a requirement ? When did this happen?

I find it a bit hard to believe that this is the first I've heard of it....

sneekymum

And Me.....

EdInvestor

Can't see anything relevant in the NU pdf.On page 17 it refers to the Alternatively Secured Pension, which is the new way of avoiding an annuity after age 75 - there doesn;t seem to have been any change?

dunstonh

Maybe i linked the wrong pdf. There is a whole batch of them.

Half the problem with discussing the potential new options is that the is still a lot of information missing. Bits are leaking through all the time and there are already amendments planned for the 2006 finance bill for things that dont come into force until April 2005.

In March, the treasury stated that the ASPs were designed to provide an annuity alternative for those with religious objections to risk pooling, not for inter-gnerational transfers, generally.

The revenue is due to publish a consultation paper ot help fully clarify the role of the ASP, setting out its analysis of IHT issues as a basis for discussion.

So, although the ASP looks quite a nice option, the Govt is concerned it will be abused and is already looking at ways of closing various loopholes on it.

Also, the ASP will be subject to stricter limits and annual reviews to avoid funds being depleted too quickly. It is highly unlikely to be considered a low risk option, like the standard pension annuity. Where you read annual reviews, read costs and charges increase.

On death, the fund assets may be passed to other members of the pension scheme. This may include family members who are part of a "family SIPP". However, it is not clear at this stage what the tax treatment will be.

I dont want to knock the ASP option as it is looking promising but its too early to say with confidence that this will be the mainstream option. Indeed, from my point of view, its good business potential. I just have the feeling with all these new consultations that keep being issued, that it will be tied up with loads of rules or restrictions that will make it less cost efficient than buying a joint annuity at 75 with a 10 year guarantee.

For example, the ASP will allow up to 7/10ths of that paid by an annuity. Whos annuity? Is that going to be an average annuity rate or the best you can find? 70% of that isnt going to provide much income. Many will not be able to afford a 30% reduction in their planned pension income. Especially when most are not making adequate provision in the first place.

What happens if you start drawing 70% but then later have to reduce the amount as you are draining the funds too quickly? Too often advisors get accused of pointing out that things can go up but forget to mention that they can go down. It is possible that the income with an ASP can go down.

I've had a quick scan round various websites and you get different information at different sites. The problem is that updates to the rules keep coming and what is good information today, isnt necessarily the case 6 months down the round.

One thing that does look quite good for the ASP is for those that are well off and are not relying on the pension to provide an income. They can take a tiny amount out , just to comply with the rules. Even if IHT is applied to the fund, they would have benefited from 40% tax relief at the start so getting 40% taken off at the other end leaves it neutral. Thats better than having it in an account where there is no tax relief at the start but still gets 40% taken off at the other end. - will that loophole remain?

(sorry if bits of this post are disjointed, i made a number of edits throughout it being typed. I think you get the point though).

EdInvestor

OK, nothing's changed, then.
The regs are still in flux, as you say.