Do we go for Joint Life????

JeremyZerg

Everyone can afford the risk of drawdown as it is no riskier than an annuity. One's mortgage being redeemed or not from the TFC has no bearing on the choice nor does redundancy.

I strongly disagree.

There is inherent risk in drawdown as fund performance can affect the level of income available to the retiree. An individual with a SIPP heavily invested in property and equities over the past year is likely to suffer reduced income when new maximums are calculated.

Sustained income in drawdown is never guaranteed. Therefore outstanding mortgage payments and possible redundancy are massively important considerations.

I think that drawdown is a fantastic option in many cases. (Just not this one. :P )

EdInvestor

JeremyZerg wrote: »

An individual with a SIPP heavily invested in property and equities over the past year is likely to suffer reduced income when new maximums are calculated.

Not so. New income levels are only calculated every 5 years and have an inbuilt tendency to rise due to the fact you are 5 years older. An individual facing an income review now would have had the benefit of 4 years' strong growth before recent falls, and so would be very unlikely to face a reduction.

Someone who started drawdown 2 years ago has another 3 years to go before a review, in which period any losses are likely to turn into profit.

The new flexible drawdown rules offer considerably more security than the old ones where reviews were triennial and there was no 'review on request' facility.

JeremyZerg

New income levels are only calculated every 5 years and have an inbuilt tendency to rise due to the fact you are 5 years older...

I am aware of this!
But thank you... :P

I maintain that there is "inherent risk" in drawdown and that "sustained income" is never guaranteed. Of course, these risks are tolerable for a large proportion of investors - I just think that in an instance such as this, annuity purchase is probably the better option.

Out of interest (and morbid curiosity), I did some sketchy calcs for the earlier quoted value of £5,000 taken into drawdown, or used for an annuity purchase...

A male aged 60 can get a Single Life annuity worth around £320 p.a. for life (filthy-stinking-rich) for his or her £5000. This, I believe, inclues standard adviser commission - so we'll assume that Mr IFA has located the best deal.

The same income in drawdown (£320) is matched (or potentially exceeded) until age 70, at which point the maximum rate drops to £280... At age 75, the client may buy an annuity for around £170 p.a - assuming rates haven't fallen.

Taking maximum income throughout results in payments of £384 (60-65), £307 (65-70) and £244 (70-75) p.a. - at an average of £280 over the term, assuming death at 80!

Over 6.5% growth p.a. is required in order to average £320 over the term (with all other variables remaining the same).

(Assumptions: May 2008 GAD rates throughout for the same individual (Male aged 60, 65, 70, etc.), assumed growth rate of 4.7% p.a. (also quoted earlier), initial and ongoing adviser commission (3% and 0.5% respectively **) and a weighted charge of 1% to cover all investment fund AMCs and SIPP admin costs - probably an underestimate.)

It's only a silly wee model, but hey. :P

** Which IFA is going to offer ongoing advice for £50 a year?

stagey_2

good day - I refer to this started some time ago when I was trying to sort out hubbies pensions. Yes - I have gone to an IFA - on 9/6 - guess what 4 weeks later I am still awaiting information - seems the Pru are dragging their feet - but when I asked for the info from the Pru it did come within 2 weeks. So have chased them again today - will let you know outcome!