Income drawdown vs annuity purchase at retirement

jamesd

OK, that's easy: if you're reinvesting the money it doesn't make any sense at all to buy an annuity instead of using income drawdown. Because you're reinvesting the money you're going to have investment variability anyway and there's no point in buying an annuity when you don't need it for stable income yet.

Missfire10

I'm new to this so I hope I am posting in the right place! My dad has just retired & is looking at an annuity for one of his pensions. I had never heard of open market options until now. My dad has asked me to find out what I can about it, so if anyone could offer any advice I would be very grateful. Thanks

dunstonh

Missfire10 wrote: »

I'm new to this so I hope I am posting in the right place! My dad has just retired & is looking at an annuity for one of his pensions. I had never heard of open market options until now. My dad has asked me to find out what I can about it, so if anyone could offer any advice I would be very grateful. Thanks

Any local IFA or a restricted FA that has no restriction on annuity providers would be his best bet. That is the distribution channel that tends to offer the best terms as well as doing all the work for him.

The open market option just allows him to buy his annuity with a different provider. More often than not, the annuity rate is higher elsewhere.

kidmugsy

Missfire10 wrote: »

My dad has just retired & is looking at an annuity for one of his pensions.

It might be useful to ensure that before he opts for an annuity he knows about the alternative i.e. Income Withdrawal (a.k.a. Income Drawdown).

Missfire10

Thanks for your advice, most appreciated

Matthew_c

Just after a bit advice if possible, dads just turned 65 and still hasn't decided what to do with his pot of £115k.

His health is not the greatest so is not really thinking of getting an annuity.

A drawdown is an option but neither myself or my father understand enough about them.

One question about DD pensions -- If my father takes 6k from it each year will it grow at all during the year or just stay at the same total until the pension is all gone?

Dad has seen a IFA but wanted £3k for his services + £500 a year, I thought that was a tad excessive so he has only had an initial chat so far.

Thanks Matt

Paul_Herring

Matthew_c wrote: »

One question about DD pensions -- If my father takes 6k from it each year will it grow at all during the year or just stay at the same total until the pension is all gone?

Depends on what the remainder is left invested in - it could even decrease in value.

westy22

It is generally considered that a drawing rate of 3%-4% per annum is sustainable long term providing the money left is invested in balanced investments.

He should take his 25% PCLS as that is tax-free money, even if he doesn't immediately need it. The balance of £86,250 should allow approx £3,000 per annum to be drawn without severely reducing the capital left.

dunstonh

Dad has seen a IFA but wanted £3k for his services + £500 a year, I thought that was a tad excessive so he has only had an initial chat so far.

Drawdown is expensive for an IFA. The figures are reasonable as drawdown is classified as a high risk transaction and it does need ongoing reviews. Annuity purchase would have different charges though.

spakkaman

I expect to have a couple of pension funds worth a total of £200K all being well in a few years time. I am 55 and already have a pension income of just over £50K pa from a final salary scheme. Therefore flexible drawdown seems the way to go. I will take maxi tax free but I would like to set up a drawdown arrangement that invests cost effectively (low IFA/set up costs, low ongoing charges) in say 15/20 funds so ongoing management by me with advice paid for only on an adhoc basis - not annually. How easy is this to access/accomplish? I would be very interested in hearing from anyone who has already adopted this quasi independent low cost approach (if such a thing exists).