Annuities v Drawdown pensions

[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).

[Don Corleone]

Re: 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 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).

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

[BLUETIT]

Re: Annuities v Drawdown pensions

Drawdown 100%, mine are brilliant

[Taunton Blue Genie]

Re: Annuities v Drawdown pensions

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

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

[Tuerto]

Re: Annuities v Drawdown pensions

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

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

[Gofer Blue]

Re: Annuities v Drawdown pensions

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!

[Feedback]

Re: Annuities v Drawdown pensions

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.

[Taunton Blue Genie]

Re: Annuities v Drawdown pensions

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!

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.😊

[Poolerblue]

Re: Annuities v Drawdown pensions

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

[IanD]

Re: Annuities v Drawdown pensions

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!

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.

[Re-sign Carl Dale]

Re: 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).

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!

[IanD]

Re: Annuities v Drawdown pensions

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!

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.

[Taunton Blue Genie]

Re: Annuities v Drawdown pensions

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!

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

[Swiss Peter]

Re: Annuities v Drawdown pensions

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

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.

[Allez Allez Allez]

Re: Annuities v Drawdown pensions

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

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.