Income drawdown vs annuity purchase at retirement

Nomad25

Thanks Dunston.

House and land will be too much to handle.

This retirement planning is a minefield, you've just educated me on a whole load of stuff I knew nothing about, good job I have [hopefully] a few years to get it sorted.

Reckon I've got another 5 s/e sme years in me.

I know I should approach an IFA, but none come on personal recommendation and all seem a bit [unfair of me to judge I know]parochial over here [NI] - I keep looking at 'unbiased', but I may as well stick my finger in the air as pick a real turkey.

In your opinion, would I be better of going with a retirement planning general adviser or, equity release specialist?

jamesd

Ask both. And ask a regular mortgage broker.

One difficulty with the downsizing and equity release routes is that they will depend on property values and you don't have any control over how those move. With investments you do have control of risk levels so you can reduce your chance of a drop in value just before retiring.

An option you might consider instead of equity release is a normal offset mortgage combined with investments. More capital would be available than with equity release and you'd have a good chance long term of paying the mortgage off and making an extra income. It's a high risk option because there's the potential to invest poorly as well as the chance that the investments will be lower in value than the mortgage balance when you die. You should insure against this shortfall risk if you have a partner to consider.

If you're short of pension income you could contribute some to a pension and use that with income drawdown to gain some tax advantage. You wouldn't want to buy an annuity because that would leave both capital and income unavailable to clear or pay the mortgage payments after your death.

Now looks like quite a good time for this, with equity and corporate bond prices low and long term mortgage interest rates also low. But it's still risky because they could drop further. You need to be willing to accept that there may be times when the investments might drop as much as 50% below the amount borrowed if your use only equities, less if you pick a more cautious mixture, as you should. And 50% drop isn't the lowest the equities could go if we see a repeat of the late 1920s and early 30s. Corporate bonds should do a lot better, though, if they repeated that pattern.

The normal mortgage interest rates should be a good deal better than those for equity release products.

You should also be aware that equity release is often traditionally considered a "last resort" product. Something you turn to only when you've run out of other options or just don't want to move and free equity that way. The mortgage and invest approach is a sort of halfway house but some people have suffered greatly after investments that turned out to be imprudent. It's definitely not something for the average person, due to the risk.

dunstonh

Robbenismyhero wrote: »

I am using Hargreaves Lansdown for my annuity purchase - any idea how long the process might realistically take? Thanks.

Why dont you ask them? That is what you are paying them for. We dont know which provider they are recommending, whether its transfer or open market option or what the transferring schemes are. So, we cant tell.

DRAWDOWN_OPPOSER

How do you retain your capital using a drawdown?YOU DIE. If you dont and at 75 take an annuity, you are now in the position you tried to avoid, giving it to the insurers on your death, but you are now a lot closer to it than when you were 60 .If your fund at 75 is say £100,000 and the insurer pays you 6% annuity,at the age of 91 your fund at 0% growth has paid out £96000. Now the insurer is in big trouble,lets face it the streets are full of 91yr olds and you may go on to a hundred.With average growth the only winner in this drawdown v annuity argument is the financial services.They have charged you to set up the drawdown,charged you for looking after it ,may even charge you to transfer to another provider and will then charge you to set up an annuity and also take what is left when you die and I am sure there will be a nice sum left.That however is the system and you either accept it or find another solution. If someone is providing a service they are entitled to be paid for it you just have to hope you choose the right one,it didnt work out for me and I know countless others wish they had never heard the word drawdown it has turned out to be a very high risk product.

Paul_Herring

DRAWDOWN_OPPOSER wrote:

How do you retain your capital using a drawdown?

You invest it so that it increases by more than what you withdraw.

Though given your name, I'm sure this is not something you are willing to accept.

EdInvestor

DRAWDOWN_OPPOSER wrote: »

How do you retain your capital using a drawdown?YOU DIE. If you dont and at 75 take an annuity, you are now in the position you tried to avoid, giving it to the insurers on your death

It would seem that your complaint is against compulsory annuitisation not drawdown, which at least gives you the opportunity to avoid fund confiscation up to 75,unlike annuities.After that you can get another 10 years with an annuity guarantee, but I agree with you compulsory annuitisation should be dropped ( albeit accompanied by a requirement to vest the fund and take a taxable income).

If this doesn';t work for you, then best to save outside the pension format where no such rules apply.The ISA limit, due to rise to more than 10k a year, provides a good alternative tax free wrapper and is much more flexible.

Your point about charges and the financial services industry is a valid one, but can be circumveneed if you are a willing to spend a bit of time after retirement learning some investment basics so you can manage your own money.It's not rocket science as many of us have found, and a drawdown where costs and charges are cut to the bone will be noteably less risky over the long term.

DavidLaGuardia

EdInvestor wrote: »

It would seem that your complaint is against compulsory annuitisation not drawdown, which at least gives you the opportunity to avoid fund confiscation up to 75,unlike annuities.After that you can get another 10 years with an annuity guarantee, but I agree with you compulsory annuitisation should be dropped ( albeit accompanied by a requirement to vest the fund and take a taxable income).

.

You can contiune a Drawdown after 75 (subject to changes in some limits and deductiosn on death) is called an ASP (Alternatively Secured Pension)
Before 75, there are also so called third way products which combine temporary annnuities and death benefits based on the remaining funds some of which are guaranteed.

patfla

i am 53. i had a policy with royal london and when i was 51 i took a quarter of my lump sum and get a small montly annuity from prudential
who they recommended.
i asked in 2009 for the residue to purchase isa and was told that i could not even though i was aware that i could from age 50.
i recently asked them to review it and on 4th of may was advised that i could get a lump sum of 1229.
this was acceptable however i was informed today that i cannnot get it because i am not 55 even though i made initial inquiries in 2009.
i feel as if royal london are shafting me to hold onto my funds and they have suggested that i can simply make a complaint.
do i have any redress?

dunstonh

i am 53. i had a policy with royal london and when i was 51 i took a quarter of my lump sum and get a small montly annuity from prudential
who they recommended.

Royal London didnt recommend Pru. They had a marketing agreement with Pru as their provider of annuities. It was not a recommendation.

i asked in 2009 for the residue to purchase isa and was told that i could not even though i was aware that i could from age 50.

You were probably asking the wrong question. Royal London dont do income drawdown (Scottish life who they own do). They will only offer you what they offer or within the rules of their own product. Not features and options that may be available elsewhere.

i feel as if royal london are shafting me to hold onto my funds and they have suggested that i can simply make a complaint.
do i have any redress?

none whatsoever. Its not Royal London that changed the minimum crystallisation age. It was Gordon Brown. If you have any complaints you should have made them 10 years ago when this rule change was first under consultation. The changes were made under an act of parliament and Royal London have to comply with them.

Any complaint to royal london or the FOS will tell you that they cannot bypass the law and there is nothing they can do.

lamb1102

Is it possible to re-invest drawn down income into a pension fund and therefore receive tax relief thus creating another stream of income in the future ?
If it is possible then this would maybe add more weight behind the argument for Income Drawdown for certain people. Obviously the ability to save part of your income is essential, also this is presumably available to annuity purchasers.
Thanks in advance.