11 years of pension freedoms

middlewife

So assuming people turned 65 11 years ago and took their pots, they're now 76, so approaching their eighties. I'm wondering how people plan to manage their finances in their 80s? Assuming they have reasonable assets then purchasing an annuity could be an option. I'm just not sure that in my 80s I'd want the hassle of researching investments, moving money around, but neither with a diminishing pot, would I want to pay an IFA to do it for me. A financial attorney could step in, of course, but might not have the financial acumen to invest in my best interests.

I'm lucky to have a DB pension in pay, along with a part-time job, but OH is approaching state pension age and needs to decide whether to take TFLS and purchase an annuity; pay tax on it all and purchase an annuity; buy a fixed term annuity and then a lifetime annuity; put everything into drawdown, invest the TFLS (150k) and live off that to defer annuity….. I'm sure there are other options…….

He is leaning towards the annuity route, rates are pretty good, we've an IFA who consolidated our pots so will have appointment in August to instruct,

How on earth do you decide, without the benefit of a crystal ball? All of my elderly relatives are (largely unhappily) still alive in their mid nineties, but totally incapable of managing their affairs, not a situation I would want my children to be in, any thoughts wise people of the pensions board?

El_Torro

When it comes to either going with an annuity or not, here are some things to consider:

Do you want to leave an inheritance for kids / someone who isn't your spouse? If not then that's a point in favour of an annuity. Even an inflation linked annuity should pay out more than a careful drawdown. If you have a spouse then you can always get an annuity that pays out 100% to them, if you're concerned about leaving them in a bad financial situation when you die.

Do you want to manage your investments in your 80s? If not then that's another point in favour of an annuity.

Generally speaking people who take an annuity also take the tax free lump sum. Reason being that you are taxed on annuity income so why put tax free cash into a taxed annuity? Not taking the lump sum is possible (to get a bigger annuity).

Since you already have an IFA you should discuss the pros and cons with them. Though ultimately the choice will need to come from you of course.

Silvertabby

The announcement of the pension freedoms resulted in shedloads of LGPS members (both current and deferred) transferring their benefits to 'cash it in now' DC schemes. My then colleagues and I guessed that it would all end in tears in as little time as 10 years. Would be interested to see how accurate we were.

ADD. Most of the people I spoke to at the time had no interest in long term self-investment. But many spoke about new cars, kitchens, daughter's wedding, big family holiday to Disney Land, etc...…

poseidon1

Another way of looking at the question, is to what extent managing your own pensions and investments (along with other demanding mental excercises) can be seen as a possible means of staving off cognitive decline.

Certainly my inspiration for this supposition was the ex partner/tax consultant at my last firm who was as sharp in his eighties as when we first at his age 65.

In my opinion he remained the 'sharpest tool in the toolbox' across a whole gamut of tax advisory disciplines.

That said, those who never had any real interest in investment matters prior to transferring DB benefits to a self managed DC scheme, may well now be paying the price.

Aylesbury_Duck

https://forums.moneysavingexpert.com/discussion/comment/82042178#Comment_82042178

I wonder how many of those people currently bemoan what they'd call the "live today" attitude of today's younger generations, without spotting the irony.

ali_bear

When it comes to buying a lifetime annuity, I don't see any point in waiting or deferring it. If you're going to do it, do it now. Just get the size right - neither too big nor too small (as long as you have the necessary uncrystallised) and it will see you through to the end of your days.

dunstonh

 I'm just not sure that in my 80s I'd want the hassle of researching investments, moving money around, but neither with a diminishing pot, would I want to pay an IFA to do it for me. 

So you don't want to DIY, and you don't want to use an IFA. That just leaves annuity.

A financial attorney could step in, of course, but might not have the financial acumen to invest in my best interests.

And note that they would probably have to use an IFA to protect themselves.

Flugelhorn

https://forums.moneysavingexpert.com/discussion/comment/82042178#Comment_82042178

I am sure many thought that somehow they would still get the income from the employer's pension

Silvertabby

https://forums.moneysavingexpert.com/discussion/comment/82042509#Comment_82042509

I wouldn't be surprised !

Before 'freedoms' the earliest age you could access your LGPS benefits was 60, whereas private pensions could be taken (almost always as annuities) from 50, so transfers out by pre 60/post 50 leavers weren't unusual.

Took a phone call from a lady notifying us of her pensioner husbands death, and claiming her widow's pension. But the only record I could find for him was one that had been transferred out to a private scheme. Explained this to her, and asked if she was due benefits from the other scheme. The result was that her husband had purchased the 'best possible' annuity option, which had been single life with no guarantees or increases. Despite this, when he knew he was dying he asked his annuity provider how much his wife would get, because he knew that the LGPS benefits he had transferred in included a 50% widow's pension. On being told that there would be no ongoing annuity payments after his death, he drew the only possible conclusion. ie, that he had only transferred his own pension, and that his wife's widow's pension remained with the LGPS.

A very distressing case all round.

Bostonerimus1

I set up enough DB pension/SP etc to cover my retirement income for the reason that I didn't want to worry about my DC pensions and general investments and I just leave those in a fairly aggressive Total Return portfolio. So I leave my investments alone and really there's so little effort that I have difficulty calling it DIY. Most of my effort now goes into gifting to my heirs and organizing things to minimize IHT and any income taxes they will eventually have to pay.

I think many people would benefit from using an annuity and SP to cover their basic needs and leave any remaining DC balances to grow in a fairly risky portfolio that they only touch to make withdrawals. They can use it for top up income and to perhaps leave something to the kids.

Linton

I reached 65 before 2016 and am still perfectly capable of managing my & Mrs Ls investments, even better able I would say having had over 10 years more experience.

What helps considerably is that the investments are structured to minimise the need for any ongoing maintenance. The required income continues to turn up month after month with zero decision making or any other effort on my part.