Annuities v Drawdown pensions

I read everywhere that annuities are a very poor option for one's pension pot(s) but as someone without any dependants or progeny is there a more balanced option than drawdown (which could either denude my fund unduly if I live too long or leave too much unspent money in the bank if I peg it too early) and an annuity?

I have sought professional financial advice in the past regarding all sorts of investments but it has usually ended in tears. Just wondered if there are any options beyond the two extremes (other than doing a split between the two).

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Originally Posted by Taunton Blue Genie

I read everywhere that annuities are a very poor option for one's pension pot(s) but as someone without any dependants or progeny is there a more balanced option than drawdown (which could either denude my fund unduly if I live too long or leave too much unspent money in the bank if I peg it too early) and an annuity?

I have sought professional financial advice in the past but it has usually ended in tears. Just wondered if there are any options beyond the two extremes (other than doing a split between the two).

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I’m no expert but I have looked at this , always seems to me you need to live a very long time to make the annuity work and with drawdown if you die the remaining money goes to your beneficiaries whereas when you die your annuity dies with you

Drawdown 100%, mine are brilliant :xmasthumbup:

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Originally Posted by Don Corleone

I’m no expert but I have looked at this , always seems to me you need to live a very long time to make the annuity work and with drawdown if you die the remaining money goes to your beneficiaries whereas when you die your annuity dies with you

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I will indeed die but, as I stated, I have no beneficiaries.

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Originally Posted by Taunton Blue Genie

I will indeed die but, as I stated, I have no beneficiaries.

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To save you from stress and worry, i'm prepared to volunteer, it's the least i can do.

Income drawdown for me. I can’t remember what the annuity rate was when I retired (in 2007) but the annuity pension was a derisory amount, took no account of inflation and would have died with me. With income drawdown you can take a lump sum of up to 25% of the pension pot tax free and leave the rest invested. I have a very diverse portfolio so if any one sector takes a hit then the others can carry it along. I can also dip into it from time to time if some big capital expenditure is required but I do have to pay 20% tax of course. When I die my wife will inherit the whole pension. After her time then the cash value can be transferred to our two children. If you have no dependents than why not leave the remainder to charity(ies)?

Having pointed out the benefits I should add that income drawdown is not for the faint hearted as the value of the pot can suddenly and significantly decrease overnight e.g. when COVID took hold at the end of March the value of mine dropped by 25%. It is now back to about 95% of its beginning of the year value, so still some way to go.

It is said that the stock markets run on greed and fear and boy, have I found that to be true. The slightest negative uttering by the likes of Trump or Carney (ex Bank of England) can have an immediate effect but these are often soon forgotten and the various indexes continue to climb inexorably upwards. Likewise any sniff of optimism e.g. the approval of the Pfizer vaccine or the BREXIT deal can send the indexes sky rocketing for a while …..until the next worry comes along!

draw it all out, spend it on drugs and hookers. you may have put morality to one side, but at least you can say you have lived.

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Originally Posted by Gofer Blue

Income drawdown for me. I can’t remember what the annuity rate was when I retired (in 2007) but the annuity pension was a derisory amount, took no account of inflation and would have died with me. With income drawdown you can take a lump sum of up to 25% of the pension pot tax free and leave the rest invested. I have a very diverse portfolio so if any one sector takes a hit then the others can carry it along. I can also dip into it from time to time if some big capital expenditure is required but I do have to pay 20% tax of course. When I die my wife will inherit the whole pension. After her time then the cash value can be transferred to our two children. If you have no dependents than why not leave the remainder to charity(ies)?

Having pointed out the benefits I should add that income drawdown is not for the faint hearted as the value of the pot can suddenly and significantly decrease overnight e.g. when COVID took hold at the end of March the value of mine dropped by 25%. It is now back to about 95% of its beginning of the year value, so still some way to go.

It is said that the stock markets run on greed and fear and boy, have I found that to be true. The slightest negative uttering by the likes of Trump or Carney (ex Bank of England) can have an immediate effect but these are often soon forgotten and the various indexes continue to climb inexorably upwards. Likewise any sniff of optimism e.g. the approval of the Pfizer vaccine or the BREXIT deal can send the indexes sky rocketing for a while …..until the next worry comes along!

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Your suggestion of leaving any unspent money (including what will be raised from the sale of my property) to charity is already something I have been considering.😊

Drawdown every time. It’s much more flexible

Like others have said you need a very good financial advisor who should invest your “pot” in a range of different funds

My pot went down over 20% in April due to COVID but has slowly increased virtually back to what it was

You can withdraw 25% tax free at any time then any other amounts as and when you want them

Again you will only pay any tax on these withdrawals if you exceed your yearly personal tax allowance (currently £12,800 p.a I think)

When you die, You can leave any money left in your pot to whoever you like..a friend, relative, charity, Vincent Tan whoever you like

For me it was a no brainier

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Originally Posted by Gofer Blue

Income drawdown for me. I can’t remember what the annuity rate was when I retired (in 2007) but the annuity pension was a derisory amount, took no account of inflation and would have died with me. With income drawdown you can take a lump sum of up to 25% of the pension pot tax free and leave the rest invested. I have a very diverse portfolio so if any one sector takes a hit then the others can carry it along. I can also dip into it from time to time if some big capital expenditure is required but I do have to pay 20% tax of course. When I die my wife will inherit the whole pension. After her time then the cash value can be transferred to our two children. If you have no dependents than why not leave the remainder to charity(ies)?

Having pointed out the benefits I should add that income drawdown is not for the faint hearted as the value of the pot can suddenly and significantly decrease overnight e.g. when COVID took hold at the end of March the value of mine dropped by 25%. It is now back to about 95% of its beginning of the year value, so still some way to go.

It is said that the stock markets run on greed and fear and boy, have I found that to be true. The slightest negative uttering by the likes of Trump or Carney (ex Bank of England) can have an immediate effect but these are often soon forgotten and the various indexes continue to climb inexorably upwards. Likewise any sniff of optimism e.g. the approval of the Pfizer vaccine or the BREXIT deal can send the indexes sky rocketing for a while …..until the next worry comes along!

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This/\ except most of my drawdown pension is in cash to ride out the troughs and uncertainty in the FTSE.I take out my tax free lump sum plus an amount that means I pay a small amount of basic rate tax per financial year. Voluntary payment of class 3 NICs adds to the state pension pot. My teacher's pension hasn't been taken to avoid higher rate tax on the total pension package. No point paying into tax free schemes only to lose that advantage when you take it out. Annuities are paying very little so you have to live a long time to get your money back. You can always shelter investments in an ISA, too.

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Originally Posted by Taunton Blue Genie

I read everywhere that annuities are a very poor option for one's pension pot(s) but as someone without any dependants or progeny is there a more balanced option than drawdown (which could either denude my fund unduly if I live too long or leave too much unspent money in the bank if I peg it too early) and an annuity?

I have sought professional financial advice in the past regarding all sorts of investments but it has usually ended in tears. Just wondered if there are any options beyond the two extremes (other than doing a split between the two).

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Hi Taunton.

I’m an IFA and most of my work is around retirement planning.

Drawdown tends to be the most popular and the route I recommend as being suitable for lots. However it depends on your attitude to risk, and perhaps more importantly, how much you can withstand any short term fluctuations without panicking.

We’ve had 10 -12 years of really great investment performance and many investors haven’t seen any really bad years. This means that many people already in drawdown will have unusually blinkered views on how great it is (in the same way that you may have a blinkered view of how bad investments tend to be!).

To answer your question; Yes. There are some products from a couple of pension providers that are specifically designed to give some of the flexibility of drawdown, with some certainty of income that you’d get from an annuity.

However these can have slightly higher charges.

In my experience I find that really explaining the investments risks (understanding that a £100,000 fund can drop to £80,000 by next year - and knows that this is very possible and should not panic), along with a properly constructed drawdown portfolio.

Many people have the same investment strategy for
drawdown than they use to build their fund as it’s an easy option. This is lazy planning and will lead to tears when we have the next crash. I would strongly consider setting the pension up along the lines of having the next 2-4 years of income being invested in cash / really low risk investments, and the next few years income invested in some good low-medium risk, with any money that’s unlikely to be needed until later in life can be held in things which will fluctuate more. This is often a better option - and should be rebalanced every year. Some drawdown investment portfolios I see are shocking - they are great in the good times, but the income comes straight from cashing in the investments every month - when things drop this means that the pension is forced to sell on a low and it will never recover!

Hope this helps!

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Originally Posted by Re-sign Carl Dale

Hi Taunton.

I’m an IFA and most of my work is around retirement planning.

Drawdown tends to be the most popular and the route I recommend as being suitable for lots. However it depends on your attitude to risk, and perhaps more importantly, how much you can withstand any short term fluctuations without panicking.

We’ve had 10 -12 years of really great investment performance and many investors haven’t seen any really bad years. This means that many people already in drawdown will have unusually blinkered views on how great it is (in the same way that you may have a blinkered view of how bad investments tend to be!).

To answer your question; Yes. There are some products from a couple of pension providers that are specifically designed to give some of the flexibility of drawdown, with some certainty of income that you’d get from an annuity.

However these can have slightly higher charges.

In my experience I find that really explaining the investments risks (understanding that a £100,000 fund can drop to £80,000 by next year - and knows that this is very possible and should not panic), along with a properly constructed drawdown portfolio.

Many people have the same investment strategy for
drawdown than they use to build their fund as it’s an easy option. This is lazy planning and will lead to tears when we have the next crash. I would strongly consider setting the pension up along the lines of having the next 2-4 years of income being invested in cash / really low risk investments, and the next few years income invested in some good low-medium risk, with any money that’s unlikely to be needed until later in life can be held in things which will fluctuate more. This is often a better option - and should be rebalanced every year. Some drawdown investment portfolios I see are shocking - they are great in the good times, but the income comes straight from cashing in the investments every month - when things drop this means that the pension is forced to sell on a low and it will never recover!

Hope this helps!

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Unless post Brexit inflation has a say, putting a lump of cash into Premium Bonds is a very safe way to look after your cash....and a bit of monthly fun seeing if you have won anything. Slightly more interesting than a bank statement showing your 0.01% cash fund growth.

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Originally Posted by Re-sign Carl Dale

Hi Taunton.

I’m an IFA and most of my work is around retirement planning.

Drawdown tends to be the most popular and the route I recommend as being suitable for lots. However it depends on your attitude to risk, and perhaps more importantly, how much you can withstand any short term fluctuations without panicking.

We’ve had 10 -12 years of really great investment performance and many investors haven’t seen any really bad years. This means that many people already in drawdown will have unusually blinkered views on how great it is (in the same way that you may have a blinkered view of how bad investments tend to be!).

To answer your question; Yes. There are some products from a couple of pension providers that are specifically designed to give some of the flexibility of drawdown, with some certainty of income that you’d get from an annuity.

However these can have slightly higher charges.

In my experience I find that really explaining the investments risks (understanding that a £100,000 fund can drop to £80,000 by next year - and knows that this is very possible and should not panic), along with a properly constructed drawdown portfolio.

Many people have the same investment strategy for
drawdown than they use to build their fund as it’s an easy option. This is lazy planning and will lead to tears when we have the next crash. I would strongly consider setting the pension up along the lines of having the next 2-4 years of income being invested in cash / really low risk investments, and the next few years income invested in some good low-medium risk, with any money that’s unlikely to be needed until later in life can be held in things which will fluctuate more. This is often a better option - and should be rebalanced every year. Some drawdown investment portfolios I see are shocking - they are great in the good times, but the income comes straight from cashing in the investments every month - when things drop this means that the pension is forced to sell on a low and it will never recover!

Hope this helps!

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Thanks, RCD. I think I will have to bite the bullet and discuss all the details with someone of your ilk :-)

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Originally Posted by Taunton Blue Genie

Thanks, RCD. I think I will have to bite the bullet and discuss all the details with someone of your ilk :-)

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My IFA now is excellent. I had one before him that was awful, and have had conversations with a couple of others over time that I just didn't feel comfortable with. All were registered/accredited etc, so I came to the conclusion that it's a bit of a minefield. Good luck and chose carefully.

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Originally Posted by Taunton Blue Genie

Thanks, RCD. I think I will have to bite the bullet and discuss all the details with someone of your ilk :-)

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Speak to more than one person. It isn't an exact science and even accredited people can give bad advice, or advice that would suit their vision of a future life more than yours.

Saw this Pension drawdown is widely considered to be more flexible than an annuity, but it can carry greater risk. ... However, if your fund isn't managed carefully your money could run out in early retirement. Annuity. An annuity provides certainty in retirement, but lacks the flexibility drawdown can provide.

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Originally Posted by life on mars

Saw this Pension drawdown is widely considered to be more flexible than an annuity, but it can carry greater risk. ... However, if your fund isn't managed carefully your money could run out in early retirement. Annuity. An annuity provides certainty in retirement, but lacks the flexibility drawdown can provide.

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Good lord, I would never have guessed.

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Originally Posted by Allez Allez Allez

Speak to more than one person. It isn't an exact science and even accredited people can give bad advice, or advice that would suit their vision of a future life more than yours.

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Absolutely- recommend speaking to more than one, and go with who you are comfortable with. Check out what level of ongoing advice and support is offered, this is crucial if drawdown is the selected route.

The standard of advice is much better than in the past, and there shouldn’t be any rogues (although one or two do exist) - it’s more a case of finding someone you you have confidence that they will be in with you for
along term. The clients I enjoy working best with have been clients for 10-20 years and I care as much about their finances as I do my own.

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Originally Posted by IanD

Unless post Brexit inflation has a say, putting a lump of cash into Premium Bonds is a very safe way to look after your cash....and a bit of monthly fun seeing if you have won anything. Slightly more interesting than a bank statement showing your 0.01% cash fund growth.

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Premium Bonds are great for a short term slush fund and I often recommend them. Over the longer term they are a very poor choice though and your money will be eaten away by inflation. The prize fund is has traditionally always been less than the real rate of inflation in retirement, particularly if you take into account Martin Lewis’s argument that the typical returns are artificially skewed by the very small number of very large winners.

I would never convert all, or even a large percentage, of my pension portfolio into cash unless someone offered me a crystal ball to let me know exactly when the next crash was coming! Currently I have about 10 months-worth of pension payments in cash, the rest is still invested. I cashed in a chunk a while back when the indexes and my pension pot were at a high point to see me through the COVID crisis and the inevitable BREXIT hysteria. Hopefully by next autumn things will look a lot better.

I have learned not to panic, having had my income drawdown scheme since 2007 and have seen some significant peaks and troughs over that time. As I said in my earlier post my pension pot shrank by 25% in a matter of a few weeks in March/early April but has bounced back to within about 5% of where it was. When the markets open next I hope to see a further rise thanks to the certainty about BREXIT.

Regarding IFA's - I have one and he is ok in as much as he has designed a very broad and "moderate risk" portfolio with a mix of bonds, gilts and stocks from around the world which has performed very well overall. For example my pot is still worth what it was in January despite having taken 12 months pension payments out in the meantime. The final decision always rests with me though - he will recommend rather instruct and sometimes I feel a bit out of my depth, relying 100% on his advice. There have only been a couple of occasions where I have "done my own thing" and these have worked out very well amazingly. These are funds linked to green energy/technology which I think are a good bet for the near future.

Many thanks for the contributions on this thread by those who obviously know quite a bit about the subject.
The pension pots concerned are not huge and, in fact, I will be able to live OK without even tapping into them (due to other fixed pension income that will come on stream).
However, if any of you qualified gentlemen would like to charge me for a session with you to discuss such things please drop me a private message.

I was lucky enough to finish on a final salary pension.
The downside to this is if I kick the bucket and have no partner/wife it dies with me.

I am 27 and recently started retirement saving. I found 3 mutual funds one was a FTSE 100 index (acc), another was S&P 500 (acc), and the Rathbone Global opportunities fund (acc).

Put 1k in each and was going to top them up by £50 each a month so £150 a month private savings.

this is all done via a stocks and shares ISA.

I did this following advice from people I trust, and the potential results seem to be to good to be true. While they all have certainly had negative years,
All of these funds have performed at close to 10% average return over a 5+year period, in fact when you look longer at the market index's over 20-30 years it is more like 12%+

this means that if you invest £100 a month in one fund for a 40 year period with a average long term return of 10% that fund will be worth aprox 1.2 million within 30 years.

I have read a few finance books (money makeover - dave ramsey, I can make you rich, and rich dad poor dad) and the general consensus about investing in good, safe growth stoke mutual funds all seems to be the same.

If this is true, then we are we not all taught this in school lol, £100 a month for 40 years and you can potentially retire with a million in the bank.


here is Dave Ramsey explaining the Maths a lot better than me:
https://www.youtube.com/watch?v=7wju...DaveRamseyShow

am I being taken for a mug? or is this good advice I am following?

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Originally Posted by chris lee

I am 27 and recently started retirement saving. I found 3 mutual funds one was a FTSE 100 index (acc), another was S&P 500 (acc), and the Rathbone Global opportunities fund (acc).

Put 1k in each and was going to top them up by £50 each a month so £150 a month private savings.

this is all done via a stocks and shares ISA.

I did this following advice from people I trust, and the potential results seem to be to good to be true. While they all have certainly had negative years,
All of these funds have performed at close to 10% average return over a 5+year period, in fact when you look longer at the market index's over 20-30 years it is more like 12%+

this means that if you invest £100 a month in one fund for a 40 year period with a average long term return of 10% that fund will be worth aprox 1.2 million within 30 years.

I have read a few finance books (money makeover - dave ramsey, I can make you rich, and rich dad poor dad) and the general consensus about investing in good, safe growth stoke mutual funds all seems to be the same.

If this is true, then we are we not all taught this in school lol, £100 a month for 40 years and you can potentially retire with a million in the bank.


here is Dave Ramsey explaining the Maths a lot better than me:
https://www.youtube.com/watch?v=7wju...DaveRamseyShow

am I being taken for a mug? or is this good advice I am following?

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This is spot on advice ... you can’t go wrong with Dave Ramsey and the FIRE movement. Check out “The Simple Path to Wealth” by JL Collins or anything by Nick Murray!

In the UK these investments are usually known as Unit Trusts or OEICs rather than Mutual Funds, but essentially the same ... bizarrely many people in the Uk subconsciously associate any investing with “high risk” and negative, in the US it’s better understood (or more likely better explained).

I totally agree about the education system. I trained as a school teacher before becoming a financial planner, and the level of financial illiteracy in the UK is crazy!

Learning about how credit cards work, compound interest, budgeting and investing are far more valuable to most people than learning about Pythagoras, quadratic equations and how ox-bow lakes are formed!

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Originally Posted by Re-sign Carl Dale

This is spot on advice ... you can’t go wrong with Dave Ramsey and the FIRE movement. Check out “The Simple Path to Wealth” by JL Collins or anything by Nick Murray!

In the UK these investments are usually known as Unit Trusts or OEICs rather than Mutual Funds, but essentially the same ... bizarrely many people in the Uk subconsciously associate any investing with “high risk” and negative, in the US it’s better understood (or more likely better explained).

I totally agree about the education system. I trained as a school teacher before becoming a financial planner, and the level of financial illiteracy in the UK is crazy!

Learning about how credit cards work, compound interest, budgeting and investing are far more valuable to most people than learning about Pythagoras, quadratic equations and how ox-bow lakes are formed!

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Thanks for all your contributions, good people - including the helpful individual who PM'd me. You know who you are :-)