Annuity Bob's Annuity Blog

Treasury Proposals

annuitybob — Thu, 16 Dec 2010 15:17:36 +0000

The good news is that there will be more flexibility in how retirement income can be taken. I think this means that we might see more people split their funds between an annuity and unsecured pension. The annuity will provide a guaranteed income level, the USP will allow top ups and any surplus funds to be returned to the estate (subject to tax).

The bad news is that the tax rate on death in drawdown is increasing from 35% to an eye watering 55% but death benefits will not additionally attract IHT.

Finally the very disappointing news is that no real statement has been made about making OMO more transparent. I cannot believe that this national scandal which has been exposed by successive people and journalists for years is still not being adequately dealt with. Come on HMT and FSA – wake up.

Down Down Go Annuity Rates

annuitybob — Thu, 09 Sep 2010 15:19:22 +0000

Over the last couple of weeks we have seen a number of rate reductions across the board from all major insurers. This begs the question what to do. The obvious thing is to defer and hope rates go back up again. Before deciding on this as a course of action you need to analyse the following:

1. How much lost income will there be during the deferral period and how long will it take to recoup that income. If rates do not increase the answer is typically 20 – 30 years .

2. Where is my fund invested? If the answer is cash then it will not grow very much with current interest rates. If equities then be aware of the downside and upside risks. This decision is about balancing risk and cash flows rather than being a knee jerk gut reaction.

Everyone wants to know will rates rise – my stock answer is that I do not have a crystal ball. However if you look at the two main elements of annuity rates you can draw some conclusions. These are:

1. How long you will live. Every time the actuaries look at life expectancy they conclude we are living longer and that will reduce rates.

2. The level of interest rates. I scan the papers every week for someone forecasting a rise in rates but this does seem some way away.

Also, remeber solvency 2 in 2012 is being presented by insurers as reducing rates by 20% – 30%.

Add all of this together and theoutlook for a rise in rates does not look very positive.

Our Wonderful Insurance Companies

annuitybob — Fri, 13 Aug 2010 15:15:04 +0000

I have written a lot about how poor the service is from insurers and also about the way in which the goverment are proposing to change the rules for annuity purchase at age 75. It now transpires that those reaching age 75 who are in unsecured pension will have to stop taking income because insurer’s systems cannot cope with the change. So far it seems that only clients with arrangements at Aegon, Standard Life and Prudential will be able to continue to draw income. This means that a 75 year old may have to stop taking income or transfer (at cost) to a new provider who has the systems to enable income to continue.

Frankly I am appalled – if their systems are so poor as to reduce the income of someone in their mid seventies then they have no right to stay in business. Once again the insurer’s insatiable greed for new business without proper systems is displayed.

There is another twist in this 75 tail. We have identified a couple of clients who have guaranteed annuity rates and under their policy the guaranteed will run out once they reach age 75. The insurers will not extend the guaranteed rate beyond 75 and so once again great care has to be taken when deciding what to do.

Please also remember that if tax free cash is not taken before age 75 it is lost.

This whole issue is turning into a night mare – not helped by the pathetic systems of a number of mainstream providers.

Fair USP Campaign Update

annuitybob — Thu, 29 Jul 2010 14:03:06 +0000

We are gathering momentum. Lots of support from life companies (not those who are producing misleading quotes) and a good article in the FT. The issue is that this is complex and people need to take time to understand it. We are responding to the Treasury paper on annuities and we will be making the point in our submission that this must be sorted out if yet another mis-selling scandal is to be avoided.

I do find it irksome that no professional body has picked this up or issued any guidance to their members. At a time when they are hoping to benefit from the RDR perhaps they ought to consider what is the meaning of professional body and the guidance which other bodies provide to members instead of being just peddlars of examinations.

Government Proposals

annuitybob — Thu, 22 Jul 2010 10:43:42 +0000

We have now had an opportunity to review the Government proposals and come to some initial conclusions. Anyone who thinks that they will be able to just lay their hands on their pension pots is very much mistaken – they will need to prove they have sufficient guaranteed income (via a pension) to mean that they will never fall back on the State. Add to that the fact that they will be taxed on any withdrawal they make at their highest rate and on death any fund not used to buy a widow’s pension will be taxed at an eye watering 55%.

I suspect that what this means is that for most people the guarantee provided by an annuity will be compelling. Having said that we do welcome the extra flexibility but again must reiterate that The FSA needs to get a hold of the critical yield calculations used by providers. They are vastly misleading and unless action is taking will be the mis selling scandal of 2015.

Annuity Direct Launches Fair USP Campaign

annuitybob — Mon, 14 Jun 2010 13:20:52 +0000

The government has said that it will be removing the rule that insists that an annuity is purchased at age 75. We welcome this as it provides more choice to the individual and treats them as individuals. However we have a real concern that the way in which the risks of not buying an annuity are quantified are flawed and give the impression that this is a lower risk option than it actually is.

We have today launched fair usp which has a three point manifesto that will lead to a client having an accurate assessment of the investment return required each year to meet the income that could be bought from an annuity at outset. Visit www.fairusp.co.uk to read all about it.

We have a simple objective – to have an objective debate that leads to getting it right first time!

More Rate Falls

annuitybob — Fri, 28 May 2010 15:16:10 +0000

More insurers reducing rates today. I understand that money is flowing into the London bond market out of the Euro which is depressing yields which in turn is reducing annuity rates. I have not spoken to anyone who believes this will reverse in the short term.

Downward downward for annuity rates

annuitybob — Mon, 24 May 2010 15:06:39 +0000

In the last week we have had a number of providers reduce rates – often by as much as 1%. One provider has commented that Gilt yields have fallen as the UK becomes a safe haven from the Euro. At the same time stock markets have fallen and with them pension fund values. The question for those retiring is what to do? There are a number of options:

1. Defer retirement in the hope that markets will rise again soon. There is a cost to deferring, which is the income lost and so deferring for a long time ususally does not pay.

2. Phase retirement by cashing in a small part of your fund to enable you to live on the tax free cash and income whilst leaving the rest of the fund invested. You need to fully understand the risks involved in this route but it is an option.

3. For those who can afford to take a risk with retirement income there are annuities linked to the stock market or of course unsecured pension. These should not be entered into without a full understanding that income can fall.

Most important thing is to seek specialist adviice and understand the risks associated with any course of action.

Basd Behaviour by Life Companies – where are you FSA?

annuitybob — Thu, 29 Apr 2010 15:31:12 +0000

We have just dealt with a client who reached the age of 65 and the life company automatically bought its own annuity on a joint life basis. The fact that the client was happy to wait until they are older is apparently not relevant nor is the fact that she is single and therefore a joint life annuity will only profit the insurer concerned. They have rejected our complaint on the basis that ‘this is a policy condition’.

I am appoplectic. Where is the FSA who are supposing to be holding the life companies to account and to make them treat customers fairly? We have taken this up with the company and have at least got agreement to rewrite this onto a single life.

Needless to say we are dealing with a closed fund who frankly do not care for clients and clearly totally ignore FSA rules on treating customers fairly.

Annuity Misselling??????

annuitybob — Mon, 19 Apr 2010 10:36:14 +0000

One of our national newspapers ran an article last week about medically enhanced annuities. I have been surprised at the number of enquiries we have had from people who have bought an annuity and who were not asked if they had a medical condition when they bought the annuity. The result is that they have a lower income than they were entitled to.

The FSA insist that customers are treated fairly. How can it be fair not to point out the possibility of enhanced annuity rates to a customer and to ask for details of medical conditions?? I suspect the answer that will come back is that people are told to shop around but this really is not good enough.

Sureley the FSA really needs to get tough on what is clearly sharp practice.