With commentators now beginning to openly discuss the possibility of a collapse of another bank or financial institution, it is perhaps timely to consider what compensation arrangements are in place for depositors and investors should this happen. For savers, there are only two homes for your money that are 100% safe and these are Northern Rock and National Savings and Investments as these are both owned by the government. For everything else, there are limits to the amount of compensation that is available. Compensation payments are managed under the Financial Services Compensation Scheme (FSCS), and limits vary for deposits, investments. and insurance claims. Only institutions regulated by the FSA are eligible to be covered by the scheme, which only has £4bn per year to use for this purpose. Claims totalling in excess of £4bn would trigger meetings between the FCSC, the FSA and the Treasury to work out a solution. As things stand currently, £35,000 of deposits per person per financial institution are covered and this doubles for accounts in joint names. For investment the figure is £48,000 with 100% for the first £30,000 and 90% for the remainder. But the FSCS will only pay compensation up to the limit of £35,000 per person, per authorised institution. This means that a parent institution could be the authorised entity and depositors will only be eligible for one pay-out, even if they have other accounts in the parent’s subsidiaries. So, it may be wise to spread your savings and investments across different authorised entities, but you will have to do your own research to find out who owns whom, which companies are authorised under a group registration and which are registered individually.
Consider taking your annuity sooner rather than later, says Defaqto
Selecting exactly the right annuity to meet individual needs from the many payment options and providers available can be one of the most important decisions a person has to make. But buying sooner rather than later may be even more important, says Defaqto, the financial research company.Not only is there a realistic prospect of the bank base rate being reduced in the coming months, having the effect of bringing annuity rates down with it, buying early will both secure the current rate but also provide an income that would take many years to replace if the annuity is taken later.
A typical open market level annuity for a 65 year old man in good health, without a spouse’s income, guarantee or escalation, with a pension fund of £100,000 currently is £7,4101. The same annuity, if taken at 64, would typically be £7,2341.
So by delaying his annuity until 65, the man would receive an extra £176 per year for as long as he lived. However, he would have forfeited £7,234 by not taking his annuity at 64, and he would have to survive 41 years to make up the difference.
This assumes that the pension fund remains the same over the time in question. Even if it grew 6% in the year between him being 64 and 65, the resulting break-even period would be 12.2 years.
For a 60 year old woman in good health, a typical open market level annuity without a spouse’s income, guarantee or escalation, with a pension fund of £100,000 is currently £6,3231. The same annuity, if taken at 59, would typically be £6,228.1
So by delaying her annuity until 60, the woman would receive an extra £95 a year as long as she lived. However, she would have forfeited £6,228 by not taking her annuity at 59 and she would have to survive 65.5 years to make up the difference.
This assumes that the pension fund remains the same over the time in question, Even if it grew 6%, in the year between her being 59 and 60, the resulting break-even period would be 13.8 years.
Matt Ward, Principal Consultant for Wealth and Pensions Management at Defaqto said: “Choosing the right time to take your annuity is very specific to your individual circumstances and to your view on future annuity rates, even if your pension pot is protected by being in money or near money assets. So when you decide to take your annuity is just as important as getting the right annuity from the right provider at the right price.”
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Average annuity £100,000 purchase price, level term, no escalation, no guarantee, no spouse’s pension |
Average annuity £106,000 purchase price, level term, no escalation, no guarantee, no spouse’s pension |
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Male |
Female |
Male |
Female |
|
| Male Aged 64 / Female Aged 59 |
£7234 |
£6228 |
- |
- |
| Male Aged 65 / Female Aged 60 |
£7410 |
£6323 |
£7829 |
£6679 |
| Increase if annuity taken at 65 for male and 60 for female |
£176 |
£95 |
£595 |
£451 |
| How long it takes to replace lost annuity value if annuity taken at 65 for man and 60 for woman |
41 years |
65.6 years |
12.2 years |
13.8 years |
Source: Defaqto
Notes to editors.
1 Typical annuities are based on the average income of top five providers for the respective purchase price, as at 25 March 2008. Source: Defaqto’s RateTracker
For further information contact:
Defaqto Limited
Matt Ward, Chris Johnston or Luci Mylward
01844 295 454