Income drawdown vs annuity purchase at retirement

EdInvestor

...they have beaten indexed linked annuities. Not my cup of tea but they have done well when used correctly.

Boy, do you have low expectations DH.

You expect people to give up their capital AND take a risk so as to beat an index-linked annuity?

Er,hello.

People should always fully investigate low-cost drawdown before going anywhere near these products.

dunstonh

You expect people to give up their capital AND take a risk so as to beat an index-linked annuity?

I suggest you read up on with profit annuities with low target growth rates.

As i said, not my cup of tea but I have seen some good ones. Of course, everything is always bad in your eyes.

EdInvestor

everything is always bad in your eyes.

Now, now There's no need to exaggerate.I do like some things. Not a lot meet my criteria, I'll grant you.

I do wish the industry would try just a little harder.

dunstonh

It does appear quite often though Ed that you look at everything in a bad light whereas I tend to look for the positives.

Just because a product may not suit 9 out 10 people, it doesnt make that product bad. It makes it unsuitable for 9 and suitable for 1. Not bad for 10.

EdInvestor

Just because a product may not suit 9 out 10 people, it doesnt make that product bad. It makes it unsuitable for 9 and suitable for 1. Not bad for 10.

The problem is that if said product has a large upfront commission/other charges attached to it ( see the 5forlife example), then depite the fact it's unsuitable for the other 9 people, they are quite likely to have it recommended to them. The dreaded IBs are basically really only suitable for well off people with assets considerable in excess of the double nil rate band and/or are higher rate taxpayers in retirement or close to it.A smallish group.Yet 22bn quid's worth of IBs were sold in the past year, how many of those sales were unsuitable?

I am sorry if I come across as cynical, being basically an optimistic person: but the abuse is chronic and very well known. Any reasonably intelligent person quickly finds that a suspicious mind is essential when evaluating financial services.

I note the boss of the FSA has very similar views

dunstonh

The problem is that if said product has a large upfront commission/other charges attached to it ( see the 5forlife example), then depite the fact it's unsuitable for the other 9 people, they are quite likely to have it recommended to them.

That doenst make the product bad. It makes the person bad.

The dreaded IBs are basically really only suitable for well off people with assets considerable in excess of the double nil rate band and/or are higher rate taxpayers in retirement or close to it.A smallish group.Yet 22bn quid's worth of IBs were sold in the past year, how many of those sales were unsuitable?

Again, you are measuring things by assuming the worst. I have stated before that IBs account for around 20% of my investment product mix but the amounts invested in them are far higher than ISAs/UTs so value wise, I probably invest more in to them. Of course, it is the larger transactions that benefit more from IBs than the smaller ones. I mentioned before that IBs tend to price a lot better for 50k+ investments than for smaller amounts.

If you are concerned about commission bias then dont go with commission. Go with an New Model Adviser (NMA) IFA or go fee basis.

Im looking at that 5 for life product now and it currently has a 101% allocation on 50k+. That extra 1% pays for the NMA IFA. You can then get the product with no establishment charge. To be fair, at this time, I havent researched the product beyond the marketing blurb that arrived in the post. So I dont want to remark too much on its quality/lack of. It looks like it has potential for a minority group. Probably better for someone aged 60, than 65 where the annuity rate would be closer to 5%. Whilst I would prefer drawdown because it gives you the choice of investments, the guarantee would satisfy people that like the idea of drawdown but have concerns about the risk.

Hopefully Whiteflag will post more information after his meeting with the Scot Eq rep later today. My Scot Eq rep is useless and really taints my view of Scot Eq along with their very poor service.

EdInvestor

Some more on the 5 for Life

I see I'm not the only one who thinks it's more of an investment bond that an annuity.

dunstonh

I saw that article earlier. I was under the impression that this was an option available to pension funds as an alternative to an annuity. However, it appears it is not (noting that I still havent read the detail pack on it and partly waiting for whiteflags comments). If it is available to use with pension funds, then its ok. If its not available to pension funds and is straight investment, then its pretty naff and the guarantee is largely pointless.

whiteflag_3

It appears 5 for life is not a pension plan, however the income will treated in the same way a Purchased life annuity!

Should we start a new thread?

dunstonh

whiteflag wrote:

It appears 5 for life is not a pension plan, however the income will treated in the same way a Purchased life annuity!

Should we start a new thread?

erm, should we bother?

I dont think anyone is going to have anything nice to say about it.