Income drawdown vs annuity purchase at retirement

EdInvestor

deemy2004 wrote:

Its not fair !

Hi deemy,

Welcome to the thread.

two IFA's against one Sipp investor

Make that three IFAs and two Sipp investors now, a bit better

How's your Sipp doing? Going up?

Pal

EdInvestor wrote:

There was never any suggestion that this was a possibility, good God, if it was, every retiree and IFA would be queuing up. :rolleyes:

So when you said earlier in the thread that an indexed linked annuity was

not hard to beat from a very low risk investment portfolio

you are now saying:

There was never any suggestion that this was a possibility

So you were referring to an investment asset or policy that doesn't actually exist?

I agree that income drawdown may be appropriate for those who wish to take risk with their pension income and who have other sources of income that they can live on. People who are retiring are almost always "low risk" when the income they will receive for the rest of their lives depends upon it, and as a result income drawdown is not desirable for most retirees, irrespective of their investment knowledge or willingness to spend time monitoring their portfolio when they could be gardening or annoying their children.

The problem is that most people who "recommend" income drawdown are nowhere near retirement themselves, so their risk tolerance, and hence their opinions of drawdown, are different from those who are actually retiring. This is why caution needs to be exercised when suggesting income drawdown or SIPPs as a solution to queries posted on this site.

Edit - Just realised Ocean had already covered the earlier point.

P.s. I am not an IFA in the sense that I don't advise individuals, only companies. I earn no commission based income at all, including nothing from recommending annuities or any type of personal pension provision. I also am not attempting to earn money by increasing traffic to my confusing website. As a result my position on annuities and SIPPS is formed with no vested interest.

EdInvestor

Pal

Pal wrote:

P.s. I am not an IFA in the sense that I don't advise individuals, only companies. I earn no commission based income at all, including nothing from recommending annuities or any type of personal pension provision. I also am not attempting to earn money by increasing traffic to my confusing website. As a result my position on annuities and SIPPS is formed with no vested interest.

I don't think anyone was referring to you.

EdInvestor

EdInvestor wrote:

.It is really not hard to beat rates for index linked annuities for younger women even with a very conservatively invested low-risk drawdown, because they are now so poor.

Annual income from pension fund of 100,000
Woman, index linked to RPI, 5 year guarantee

Aged 55 3,339
Aged 60 3,847
Aged 65 4,435 [equivalent income for a man at 65, 4,873]

And this income is taxed, of course.

These figures are not hard to beat from a very low risk investment portfolio much less a racy one.

This is what I actually said.

Does anyone think it is hard to beat a 3.3% return with a safe investment (much less a low-risk one)?

Perhaps we should end this thread here since we are back where we started.

dunstonh

I have nothing against SIPPs or Drawdown and recommend them when appropriate. I just disagree with the way they are touted as the answer for every thread that gets posted in this forum.

Risk assesment is very important and it does seem to get left out in many of the threads.

oceanblue_3

You actually said "These figures are not hard to beat". Perhaps it may have been clearer if you had restricted your post to the RPI-linked annuity for a 55-year old woman.

Also - any news yet on how providers are going to pay more than 70% of conventional rates to those aged 75 and over in drawdown? This would be really useful as I'll be speaking to a client later on about his pension fund.

deemy2004

EdInvestor wrote:

Hi deemy,

Welcome to the thread.




Make that three IFAs and two Sipp investors now, a bit better

How's your Sipp doing? Going up?

LOL

Up 15% so far this year ... I would have been happy with 10% for the whole year

Pal

oceanblue wrote:

You actually said "These figures are not hard to beat". Perhaps it may have been clearer if you had restricted your post to the RPI-linked annuity for a 55-year old woman.

I also hadn't realised that Ed's previous drawdown recommendations were based on this limited age and sex criteria. Perhaps if he makes this clear in future posts we wouldn't have the same discussion springing up all the time.

dunstonh

HM Revenue & Customs has confirmed that inheritance tax will be payable on alternative secured pensions and probably on drawdown.

Still a few unknowns but it would be interesting to see how this works as inheritance tax on ASPs will have to be paid from the estate and not the ASP itself. So liquid assets would have to be used or sale of property/assets or beneficiaries stumping up the cash.

Pal

dunstonh wrote:

HM Revenue & Customs has confirmed that inheritance tax will be payable on alternative secured pensions and probably on drawdown.

Presumably this will apply to family pensions (can't remember or be arsed to look up the proper name) as well?

Still a few unknowns but it would be interesting to see how this works as inheritance tax on ASPs will have to be paid from the estate and not the ASP itself. So liquid assets would have to be used or sale of property/assets or beneficiaries stumping up the cash.

Under an ASP isn't the fund cashed in on death to pay a, previously tax free, lump sum to a specified individual? If so then the tax would be paid from the cash sum paid out. Or are you referring to family pensions? If the latter then I agree that there is a tax planning problem.