Income drawdown vs annuity purchase at retirement

EdInvestor

Are you referring to this:

Telegraph report

If so, it appears to me that everything remains totally up in the air and the Revenue has no idea what it's doing.

IMHO it's time Government officials stopped trying to micromanage people's money.:mad:

oceanblue_3

Edinvestor says..."If so, it appears to me that everything remains totally up in the air and the Revenue has no idea what it's doing."

Exactly!! This is why your posts are often so exasperating - you appear to have no idea of what you're talking about. For example..."you can just hand the fund on to your children in the family SIPP when you die and they can in turn use it for their pension later."

Nevertheless, your sentiments concerning government interference strike a chord; similarly, I wish that it could always be sunny on my days off, and that politicians would always answer questions in a direct way, and that journalists would ALWAYS let the truth get in the way of a good story................

EdInvestor

Mail on Sunday article explains how the new pension rules will work and some of the advantages of income drawdown vs an annuity.

dunstonh

The new rules have not been finalised yet in a number of areas and providers are now getting concerned that the time left to arrange things is running out.

EdInvestor

A "warning" to the rich people who use drawdown:

"But with many of those with larger pension funds going into drawdown, advisers will have to project funds forward to the point of the second test, 20 years down the line if someone retires at 55. If you assume 8% annual investment growth over 20 years, the fund will be considerably bigger by the time of the second test and advisers will need to consider enhanced protection with this in mind."

Even though members can take some of their investment growth as income, limits on drawdown mean they are unlikely to be able to strip it all out, assuming average levels of returns.

Trustnet

Strange, isn't it, that for the less well off , the risks of a fall in the value of the fund are always emphasised, while with the rich the risk is that they will get hit with high taxes due to the fund getting much bigger.

Perhaps some of our advisors would care to account for the difference.

oceanblue_3

Hello Edinvestor

I am surprised that, as an experienced commentator, you are not aware of this important distinction.

Going back to RU55, the regulator has always made it clear that, to use your terminology, the "less well off" are those investors whose only, or principal, source of income in retirement is their pension fund. As a result, they are less well placed to weather the storms associated with market volatility.

In contrast, wealthier investors are those whose pension funds represent only a part of their plans for generating income in retirement. These people can afford to do without their "drawdown" income should market volatility lead to a threat of "negative pound-cost averaging" - remember? (we have been over this before....)

If you have any more problems, please refer to the Chartered Insurance Institute website:

http://www.cii.co.uk/qualifications/financialplanning/cfp_2005/cfp_what_does_it_involve.aspx

This is the basic qualification regime, and should stand you in good stead in the first instance. With more technical matters, such as income drawdown, for example, please do not hesitate to contact either me, dunstonh, pal, or whiteflag; we will attempt to answer your questions. Nevertheless, there is no real substitute for qualifications such as the CII's G60, K10, and K20.

Stick with it!! You're not making a complete fool of yourself.

EdInvestor

Stick with it!! You're not making a complete fool of yourself.

Kind of you to say so, OB :rolleyes:


So, it's just as likely that the smaller fund will grow nicely, despite the owner taking an income from it, is it?


[The question of whether or not the investor has other sources of income is irrelevant to the issue of whether his drawdown fund will grow, of course.]

oceanblue_3

Edinvestor says..."So, it's just as likely that the smaller fund will grow nicely, despite the owner taking an income from it, is it?


[The question of whether or not the investor has other sources of income is irrelevant to the issue of whether his drawdown fund will grow, of course.]"

Thanks for coming back on this one - I think you've done the right thing in seeking further clarification.

It's not the investment performance per se that is the most significant factor - it is the investor's overall position that is important. If an investor has several sources and types of income, then the risk posed by inopportune market volatility is, potentially, less damaging than if he or she has just one source of income.

A similar situation exists with a family of six I look after. There are five cars in the household; if one is off the road for repair, it's unlikely that any member of the family will be stuck for transport, given that they each have at least third party cover for any of the vehicles.

Do you see the point I'm trying to make?

Latchmore

Does anyone know typical costs of setting up and running a drawdown scheme? Are there any 'execution only' providers that allow drawdown without advice? My SIPP provider is execution only and very low cost, but will currently only provide drawdown with advice.

Latchmore

EdInvestor

Latchmore wrote:

Does anyone know typical costs of setting up and running a drawdown scheme? Are there any 'execution only' providers that allow drawdown without advice? My SIPP provider is execution only and very low cost, but will currently only provide drawdown with advice.

Latchmore

Sippdeal does not require advice.Charges are on the website.
After setup, there's a charge for each payment ( so if you take the money annually, it's about 11 quid p.a) Plus every 3 years you are required to have a Triennial Review by the Revenue, which costs 75 quid plus VAT.

The usual dealing charges for the investment within. I rarely trade and hold mainly shares directly not funds, so I pay virtually nothing for mine

https://www.sippdeal.co.uk

EPML is another e/o provider which AFAIK doesn't require advice and I haven't heard that Alliance Trust has a requirement. The e/o online brokers (eg Squaregain) are usually advice free as well.