Is now a good time to buy an annuity?

October 31, 2008 | posted by Pam Atherton in Investments, Pensions | comments (0)

Amid all the doom and gloom surrounding the current economic turmoil, there is at least one piece of good news - annuity rates are at a six year high.

This will be music to the ears for anyone about to retire as high annuity rates may go some way to compensating what you may have lost in the value of your personal pension fund over the last year.

If your  fund has been invested in equities, it may be 40-50 per cent lower than this time last year, in which case you may need to reconsider your retiremement plans altogether. You may decide to work longer and/or defer taking your pension until equity markets have recovered.

If you have been invested in with profits, the fall in the value of your fund may not be quite so severe, but the terms of with profit pension contracts usually require you to take your fund (or transfer it elsewhere) at your ‘normal retirement date.’

Also, with profits funds are likely to suffer from market value reductions in the coming year because of the collapse in equity markets, so you may as well take your fund now.

If you have been invested in cash over the last year, you will probably be feeling pretty smug that your fund has been protected from the stockmarket collapse, even if it hasn’t actually grown that much.

So anyone who needs a pension income now and who is satisfied with the current value of their fund, may be well advised to convert to an annuity now.

Annuity rates are at their highest since 2002, despite the increase in longevity (particularly for men) and the great take-up of impaired life and lifestyle annuities, which previously created an unfair cross subsidy in favour of healthy annuitants.

Stuart Bayliss of Annuity Direct says: “With falling interest rates and the expectation of reduced inflation, the pressure on annuity rates to fall is inevitable. The only factor likely to push them up  is higher gilt rates as a result of the government’s need to borrow significantly more money.”

According to the Defaqto annuity calculator, the best annuity for a male age 60 with a £100,000 pension fund, paying a level income with a five year guarantee is currently £7,052 pa (Canada Life), compared to £6,850 pa in August 2002 (source: Annuity Direct).

But annuity purchase is a complex business due to the fact that there are now so many different types of annuity to choose from. It is also possible to mix and match your annuities so that you hedge your bets against changing personal circumstances and financial conditions.

For instance, you could buy a mix of  investment linked annuities (with profits or unit linked), money back annuities, limited period annuities (for 5 years only) and higher paying ‘enhanced’ annuities (only for those who are in poor health, smoke or are obese).

You also need to decide whether you want to buy a pension for your spouse, an increasing income or inflation linking. Above all, it is essential that you exercise your right to shop around. An annuity specialist can help you do this:

Contact:
www.williamburrows.com
www.annuitydirect.co.uk
http://www.annuity-bureau.co.uk/

Try out the Defaqto annuity calculator:
http://www.defaqto.com/consumer/pensions.aspx

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

What the bank bail-out means for you

October 14, 2008 | posted by Pam Atherton in Banking, Investments, Uncategorized | comments (0)

As we enter a more sober era of retail banking - ‘puritan’ banking as some commentators have dubbed it - the savings and borrowing environment is set to change dramatically for the foreseeable future.
Gone will be the 100+ per cent mortgages, self certification, and much of the buy-to-let market. Instead of being offered six times your salary, you may be lucky to get three times your income. You may even be expected to have saved with the institution before even being considered for a home loan.

On the deposit front, we now have an implicit government guarantee that all retail deposits will be 100 per cent protected in the event of a bank failing, (although the government won’t admit to it for fear of encouraging moral hazard).

Shareholders in bank shares, however, may suffer as  banks participating in the bail-out have agreed to scrap their dividends for several years.

Passing the dividend will make it more difficult for these banks to raise new capital so the government’s stake in these banks may increase.

Skipping dividends will also  make bank shares less attractive as the dividends of Lloyds TSB, HBOS, RBS and Barclays were expected to pay out 11 per cent of all the income coming from companies  in the FTSE100 index this year.

For this reason, fund managers running income funds may dump bank shares, putting further downward pressure on the sector.

Bondholders may fare better as the value of bonds should rise as the threat of default eases and the risk involved in holding bank bonds reduces significantly.

For small businesses, there is a glimmer of hope that they may get better treatment - at least if they bank with HBOS/Lloyds TSB and RBS - which have been required to give small businesses and retail customers a fairer deal.

For taxpayers, the long term implications of the bail-out remain unknown, but at least rewards for failure and outsize bonus payments should become a thing of the past.

For more on sharedealing, visit:

http://www.defaqto.com/consumer/investments/share-dealing.aspx 

Check out the top performing unit trusts:http://www.defaqto.com/consumer/investments/unit-trust-sectors.aspx

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

It’s that time of year…

October 7, 2008 | posted by Pam Atherton in Investments, Pensions, Savings | comments (0)

STOP PRESS…. Landsbanki, the Icelandic bank offering  the popular IceSave account into which 350,000 UK  savers have poured an average of £15,000, has been declared insolvent.  UK savers will have to make a claim to the Financial Services Compensation Scheme. More on this in tomorrow’s blog. 

Away from the drama of yet another bank collapse, life must go on and, yes, the taxman will still want your tax return, even if you have lost all your savings in a failed bank.

So it’s time to dust off your financial records and fill in that tax return that you have shoved to the bottom of your pile of  ’things to do.’

If you wish to file a paper return, the deadline is now 31 October; if  you prefer to file online the deadline is 31 January 2009.  HMRC is trying to encourage  greater take-up of online filing, but paper returns are still valid.

The new style returns will need extra care this year so here’s a 12 point aide-memoire to help you get it right:

1. Check that you have all the right pages.  If you have capital gains from share sales or a property sale (which is not your principal private residence), you will need the capital gains pages.

2. If you are employed, you will need your P60 (showing the tax and national insurance contributions  paid via payroll) and P11D (showing your employee benefits, some of which are taxable).

3. If you are self employed, you will need the self employment pages, although it is advisable to use an accountant. Not only will you get valuable advice about allowances and what you can claim as expenses, but accountants’ fees are tax deductible.

4. Everyone has to fill in the first six pages of the standard tax return and the questions should be read carefully, particularly those on page three.

5. Gather together any bank and building society annual statements of tax deducted to fill in the relevant boxes on interest received.

6. Don’t include income or gains from Individual Savings Accounts (ISAs) or Personal Equity Plans (PEPs), but do include contributions to company and private pension schemes.

If you are a higher rate taxpayer, you may be due an 18 per cent rebate of tax (for pension contributions made in the 2007-08 tax year).

This does not apply, however, if you contribute via a salary sacrifice pension arrangement as your contributions will have been made out non-taxed income.
 
7. There is a new box to be completed if you work through a service company. Be aware that HMRC is  scrutinising service company arrangements more closely because of previous instances of tax evasion in this area.

8. The new ‘additional information’ pages are for other items such as share schemes, stock dividends and the married couple’s allowance. You don’t need to send these pages back if you have nothing to declare.
 
9. If you are non-resident or non-domiciled people, you may need specialist advice as the rules for’ non doms’ have changed significantly this year.

10. If you have trouble completing the paper return, remember that the online version will calculate your tax liability automatically.

11. If you don’t have precise information, you can use estimated figures but you should still explain these on your tax return and follow it up with HMRC.

12. There is no need to include pence – always round numbers down. Take a photocopy and remember to sign the forms and send them off in good time.

Your tax office will inform you of the amount of tax payable  by 31 January 2009. If you only owe a small amount, HMRC will adjust your tax code accordingly and deduct it through your monthly pay.

For more on tax visit:

http://www.hmrc.gov.uk/index.htm

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Where now for investors?

October 6, 2008 | posted by Pam Atherton in Investments | comments (0)

While stockmarkets remain in rollercoaster mode, ordinary investors may be wondering whether now is the right time to invest.

Despite share prices showing unprecendented volatility, eminent investors such as Anthony Bolton, the former Fidelity fund manager, announced last week he was dipping his toes back into the stockmarket.

While Bolton was at pains to say that he was not calling the bottom of the market, he said  there were areas of the market showing value.

Retail stockbroker, The Share Centre (www.share.com) agrees and has identifed 10 defensive shares worth looking at.

Nick Raynor, investment adviser at The Share Centre says: “There are opportunties for investors to pick up bargains where shares are currently undervalued.

“We are encouraging investors to fully research any investments they are considering and that they make the most of alert and monitoring tools such as stop loss limits and price targets.”

Raynor likes utility stocks such as National Grid, Pennon and Northumbrian, on the grounds that EDF’s recent purchase of British Energy may rekindle some corporate activity within the sector.
Utility stocks are also recession-proof, given that everyone needs water, gas and electricity, even if the economy goes into recession.

Another recommendation is Reckit Benckiser, the world’s largest cleaning products group, owning brands such as Vanish, Harpic and Airwick. The company’s strategy is simple and well-executed and people will still clean their homes, irrespective of economic conditions.

Rayner also likes Tesco’s defensive qualities as a food retailer which is expanding successfully in countries such as Russia, and whose shares are currently yielding 11.6 per cent.

Similarly, BAT, the cigarette manufacturer, has strong defensive qualities, a commitment to increase dividends and long term organic growth.

BT is favoured for its relative stability and the strong demand for broadband in the UK, where BT is the leading retail supplier, although Raynor recommends only drip feeding into this share.

Despite difficult trading conditions in the property market, Raynor is backing Land Securities. The company has decided to split its £15bn property portfolio into three separately quoted businesses as it looks to return value to investors.

Another favourite is Cobham, the aerospace company, which has strong trading links with the US, where defence budgets are growing at a higher rate than in the UK. A 12 per cent fall in the share price adds to its attraction.

STOP PRESS: The German and Spanish governments are considering following the Irish government and guaranteeing up to 100 per cent of retail savings deposits in their respective countries’ banks. The guarantee limit in the UK rises to £50,000 per authorised institution (not brand) from tomorrow 7 October.

New to sharedealing?  Visit:
http://www.defaqto.com/consumer/investments/share-dealing.aspx
Want to spread your risk via unit trust investment?:
http://www.defaqto.com/consumer/investments/unit-trust-sectors.aspx
Invest directly in shares via a Self Select ISA:
http://www.defaqto.com/consumer/investments/isas/guide-to-self-select-isas.aspx

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

September financial services market overview

October 3, 2008 | posted by Pam Atherton in Banking, Insurance, Investments, Mortgages, Pensions, Savings | comments (0)

The near collapse of the global banking system in September left financial advisers stunned as they tried to come to terms with the implications of recent events for their businesses and clients.

UK and global insurers revealed over £1.5bn of exposure to Lehman Brothers and insurer AIG, with Axa, Aegon and Aviva declaring exposure to both, while Friends Provident, Zurich Financial and Royal Liver confirmed exposure to Lehman Brothers only.
 
IFAs scrambled to assess the potential losses for clients’ capital invested in structured products underwritten by Lehman Brothers, such as those offered by Meteor, Arc, NDF and DRI.

The takeover of HBOS by Lloyds TSB raised the prospect of a new super bank controlling 28 per cent of the UK mortgage market, leading to adviser concerns over competition and cuts in
procuration fees. 

Advisers also wondered about the future of Swip and Insight’s multi-manager propositions and the new bank’s plans for the protection market, when the two banks merge with an 18 per cent share of the life insurance market once the Scottish Widows, Clerical Medical and Halifax Life brands are all under one roof.

The Investment Management Association issued a warning about the lack of transparency and performance information on retail structured products and the FSA was severely criticised for allowing structured products to go unregulated.

On the Retail Distribution Review front, Financial Services Consumer Panel chairman, Lord Lipsey, said he thought the FSA would seek a middle way on the strict division of sales and advice set out in the interim RDR report.

Simply Biz chairman, Ken Davy, called for the RDR to allow advisers to have the choice of gaining a diploma or equivalent qualification within six years or working under the supervision of a qualified adviser.

A mandatory deadline for higher qualification in the final RDR report would force 10- 30 per cent of IFAs out of the industry, Davy said.
 
But the Personal Finance Society said the number of advisers who hold the chartered financial planner qualification had leapt by 50 per cent in the last 12 months.  The Society also established a group of pensions experts to lobby HMRC for greater clarity on QROPs regulations.

Advisers welcomed the FSA’s decision to investigate absolute return funds with regard to their development, risk management and Treating Customers Fairly, while IFA firm, Hargreaves Lansdown, said it did not think the FSA’s ban on the short selling of 32 financial stocks until 16 January 2009 would adversely affect these funds. 

Elsewhere, APCIMs attacked the FSA for failing to do an adequate cost-benefits analysis of its TCF requirements.

Meanwhile, the Lib Dems at their party conference vowed to tackle the disincentives to save via personal accounts, axe higher rate relief on pensions, urge the FSA to fund a system of generic advice via an industry levy and endorsed equity release as a way of boosting pensioner incomes.

Pensions Minister Mike O’Brien said the Government would report on the effect of means-testing in December and dismissed the ‘wild claims’ that had been made about the number of people likely to be affected.

Meanwhile, research by Fidelity revealed startling differences on the returns of mainstream funds over a five year period, depending on the fund wrapper used. Highest returns were from collective funds, followed by offshore and onshore bonds due to the CGT changes effective since April 2008 which make collective funds more tax efficient for most investors.

The Irish Government’s decision to guarantee the retail deposits held by six of  Ireland’s largest financial institutions ratcheted up the pressure on the UK Government to do likewise.

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

What next for B&B savers and borrowers?

September 30, 2008 | posted by Pam Atherton in Banking, Mortgages, Pensions, Savings | comments (0)

It is business as usual for depositors and other customers of Bradford & Bingley (B&B), who need have no concerns about the safety of their money.

That was the message from the Financial Services Compensation Scheme (FSCS) yesterday as it stepped in to help the 2.5m B&B customers  after the bank failed to meet its regulatory requirements and the FSA declared the bank in default. 

The FSCS is contributing some £14bn to enable retail deposits held in B&B, and which are covered by the compensation scheme, to be transferred to their new owner, Abbey, which in turn is owned by the Spanish bank, Banco Santander.

FSCS chief executive, Loretta Minghella, said: “This initiative means that some 2.5m people can rest assured that their money is safe and they will not lose it because of the problems at Bradford & Bingley. They can access their accounts in the normal way and it is business as usual for them.”

This effectively means that B&B depositors will have 100 per cent of their savings protected, because the FSA and FSCS have arranged for a smooth transfer of their accounts to Abbey.

Normally, when a UK authorised bank fails,  only the first £35,000 is covered by the FSCS.

So you should make sure you spread your money across different savings institutions (that are not all part of the same group) so that your money is protected.

For instance, if Banco Santander were now to fail and you had accounts with B&B, as well as with Abbey and Cahoot (all owned and authorised under the Banco Santander name), you would  only be covered for the first £35,000 of total savings held with these three brand names, not £35,000 for each.

For borrowers, although existing B&B mortgages will continue to run as they are for the time being, once a mortgage deal comes to an end, it is likely that you will be required to move elsewhere or pay the bank’s prevailing standard variable rate which will almost certainly be higher.

Those with buy-to-let mortgages may have difficulty re-mortgaging elsewhere as a large number of lenders have withdrawn from the market. For example, three lenders previously funded by the now defunct Lehmann Brothers have ceased lending.

For shareholders, the outlook is even worse. There is little prospect of them receiving anything and B&B staff with holdings  in the bank’s SAYE scheme and pension plan will be particularly hard hit.

All of which serves to prove the old maxim that you shouldn’t put all your eggs in one basket.

For more on the FSCS visit:
www.fscs.org.uk

For the top instant access savings accounts visit:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx
Top cash ISAs:
http://www.defaqto.com/consumer/savings-accounts/cash-isas.aspx
Top term accounts
http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx
TOp notice accounts
http://www.defaqto.com/consumer/savings-accounts/notice-savings-accounts.aspx
TOp children’s savings accounts:
http://www.defaqto.com/consumer/savings-accounts/childrens-accounts.aspx

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

As stocks plunge, spread betting soars

September 16, 2008 | posted by Pam Atherton in Investments | comments (0)

As stockmarkets plunged yesterday in the wake of the momentous events on Wall Street, it’s small wonder that ordinary investors are turning to spread betting in a bid to make money.

Spread betting volumes  more than doubled in the first half of 2008, compared with a year earlier, according to a survey of wealth managers by ComPeer, the industry analyst, while Cass Business School predicts that over one million Brits will have a spread betting account by 2011.

Spread betting offers investors the opportunity to make money in falling markets, particularly via ’shorting,’ whereby you buy shares in a falling market and sell them on in the hope of buying them back later at a lower price.

In brief, spread betting is a form of investment gambling on price fluctuations in a wide range of markets, including indices, individual stocks and shares, commodities and currencies.

Any profits  are tax free (just like any other form of gambling), there’s no stamp duty and no commission or brokerage fees, which may explain its extraordinary attraction to so many people.

But it’s worth setting a few rules before trading if you are new to this form of gambling. Never bet more than you can afford to lose and be prepared to take your losses on the chin.

If you want to spend more than pin money, read up on it and study the share price charts which could turn your hobby into a skill. Most spread betting companies will let you try your hand at spread betting by trading 1p a point for the first few weeks.

Experts recommend specialising in a small area of the market, such as the value of the dollar or oil, rather than trading randomly across the market.

Set yourself a limit as to how much you are prepared to put at risk in any single trade. Experts recommend never placing more than 2 per cent of your account at risk, so if you have a bank of £2,000, be prepared to lose up to £40.

You should set your stop loss accordingly so that if you’re buying the FTSE 100 at 50p, your trade is closed automatically if the index drops 80 points.

Don’t be greedy. Be prepared to cut your losses fast and take your profits early. After all, no one ever  went broke taking a profit. 

Directory of spread betting firms:
http://www.find.co.uk/investments/spread_betting&cfds/spread_betting

http://www.igindex.co.uk/?QPID=116&QPPID=2

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Structured products not all they’re cracked up to be

September 11, 2008 | posted by Pam Atherton in Investments, Savings | comments (0)

Structured products have been heavily promoted in recent years as a way of protecting your capital against heavy stockmarket falls.

Often referred to as ‘guaranteed equity bonds’ or GEBs, structured products  claim to provide a return related to growth in the stockmarket and a guarantee against losing your original investment.

But research by the Investment Management Association shows that many of these claims should be taken with a pinch of salt because GEB providers are not required to report on stockmarket performance, making it hard to assess the accuracy of the claims they make about their products.

National Savings & Investments (NS&I), one of the few providers which does disclose such information,  has launched five GEBs  over the last two years.

The IMA compared the performance of NS&I’s five GEBs with that of a FTSE 100  index tracker,  against which the GEBs are benchmarked.

It found that if you had bought the index tracker, your return would have been around 3.5 per cent higher than the average return from NS&I’s GEBs, net of charges.

IMA chief executive, Richard Saunders, says: “While GEBs offer a guarantee against the index falling over a five year period, that is a relatively unusual event.

“The index has seen significant falls since 2000, but it is currently around 30 per cent higher than its level in 2003.  Before 2002, the last time it was down over five years was in 1978. Investors may not realise just how much return they are giving up in order to be protected against what is a rare event.”

The last few years have seen considerable volatility in the stockmarket and the FTSE 100 is currently below its level in 1998. But risk can be managed and the key to achieving this is through diversification, both over asset classes and over time.

A portfolio invested across all 30 IMA fund sectors would have produced an average return of 5.2 per cent over the last 10 years, beating inflation and the risk free return (from Government index linked bonds).

Diversification over time can be achieved by investing on a regular monthly basis which enables you to benefit from the effect of ‘pound cost averaging.’ 

The latter is the mechanisim whereby if you invest on a monthly basis, you will buy more units on the dips and fewer shares on the highs, smoothing out investment risk over the long term.

Defaqto wealth management principal, David Abbis, says:”No investor wants to receive less back than the amount invested, but few wish to pay for a guarantee. Careful planning for a medium to long term investment with regular monitoring of funds can produce a reasonable return at minimal additional cost.”

Visit the Defaqto Best Buy tables (click on any of the unit trust sectors on left hand side):
http://www.defaqto.com/consumer/investments/unit-trust-sectors.aspx

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Time to review protected rights funds

August 29, 2008 | posted by Pam Atherton in Investments, Pensions | comments (0)

From 1 October 2008, it will be possible to incorporate ‘protected rights’ funds into a Sipp and invest the money as you wish.

Currently, the investment of protected rights within Sipps is heavily restricted and even where a Sipp provider accepts protected rights money, the funds can usually only be invested in cash, bonds and insured funds and the funds normally have to be kept ringfenced from the rest of your Sipp.

You may have protected rights funds if you have opted out of the State Earnings Related Pension Scheme (Serps, now known as S2P) at any time since 1988 and set up a personal pension to invest the National Insurance rebates and incentives offered by the government to do so. 

Between £75 and £100bn of protected rights are believed to be held in personal pensions and a further £250bn in final salary schemes.

Protected rights could constitute up to 40 per cent of your pension fund - a significant amount of money which could be consolidated within a Sipp, making the administration and management of your pension much easier and possibly generating cost savings too.

Tom McPhail of IFA firm Hargreaves Lansdown says: “The ability to invest protected rights money within Sipps from 1 October is all about investment freedom and the facility for people to take control of their funds.

“For instance, if protected rights money is currently invested in a poorly performing insurance company managed fund, you could, for instance, move it into a top performing unit or investment trust, ETF, shares, property, bonds or any other investment permitted by your Sipp provider.”

Another benefit is that protected rights can be put into income draw down (now known as Unsecured Income). However, if you are married and want to buy an annuity before 2012, you must use your protected rights money to purchase a spouse’s annuity as well. After 2012, this restriction will be lifted.

Contracting out via money purchase pensions will be abolished from 2012 anyway, so now may be a good time to think about what you want to do.

For more on Sipps, read our guide:

http://www.defaqto.com/consumer/pensions/compare-sipps/guide-to-sipps.aspx

Visit www.sippsupermarket.com

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Mixing and matching the answer to retirement flexibility

August 28, 2008 | posted by Pam Atherton in Investments, Pensions | comments (0)

A  host of ‘third way’ retirement products and US-style variable annuities have been launched in the UK over the last two years, driven by historically low annuity rates and a desire for greater financial flexibility in retirement.

The players include The Hartford, Lincoln National, Met Life, Living Time (AIG), Canada Life, Aegon/Scottish Equitable and the Prudential. Standard Life and Axa are expected to enter the market later this year.

Most of the new products fall somewhere between annuities and Unsecured Pensions - the latter being a form of  income drawdown, the facility to keep your pension fund invested in the stockmarket, while drawing an income, instead of buying an annuity.

The US-style variable annuities involve an insurer providing a minimum guaranteed income for life which can  ratchet up if the underlying funds rise in value.

This sounds great in theory, but guarantees come at a cost and this has been the main criticism of the new wave of ‘third way’ retirement products.

The guarantee will only benefit you if your fund would otherwise have been exhausted by withdrawals and/or falling stockmarkets before you die.

Insurers offering these products that you are far more likely to outlive your assets than you realise and that the cost of the guarantee represents good value.

Many financial advisers, however, beg to differ, saying that the present roster of products are too expensive to be worthwhile to pensioners.

Research from Fidelity conducted in October 2007 appears to support this view. Fidelity calculated that the probability of a 65 year old man exhausting his capital by the time he reaches age 95 is almost one in 16.

This assumes that he withdraws 5 per cent from a £50,000 fund with a 1 per cent annual management charge and is invested  50/50 in bonds and equities. By adding on a 1 per cent charge for a guarantee, the probability of the fund being exhausted increases to one in five.

But a 65 year old may not live to age 95 anyway. When a 65 year old’s life expectancy is factored in, the odds lengthen to a one in 50 chance, but only if he was not paying for a guarantee throughout the term of the product.

So while these third way products are a welcome innovation, they need further refinement before they become attractive to those reaching retirement today.

Retirees can secure similar guarantees and flexibility by mixing and matching their pension fund and savings via a mix of annuities (with profit, unit-linked, index-linked and so on) and Unsecured Pension (an Alternatively Secured Pension after age 75).

This strategy avoids having to pay for costly guarantees and leaves the retiree with greater flexibility to cope with changing circumstances, such as death of a spouse and the need for nursing care in their final years.

For more on your options at retirement, read the Defaqto guides:
http://www.defaqto.com/consumer/pensions/your-options-at-retirement.aspx
http://www.defaqto.com/consumer/pensions/your-options-at-retirement/guide-your-options-retirement.aspx

Try out the Defaqto Annuity Calculator:
http://www.defaqto.com/consumer/pensions.aspx
 

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit
Next Page »