Best news since the mother-in-law lost her voice. Some have expressed concerns that pensioners may blow it on Lamborghini's - that's a load of bollox - why buy one of them when you can be sensible ?
Doesn't do much for my job prospects as I work for an annuity provider. We have put a number of cases on hold whilst people take advice on what is best for them, however we have taken cancellations on quite a few too. For people who have annuities in payment it is hard lines. For those who are within the cooling off period with my company we are able to accept their cancellation notices, however the scheme that pays the money out to us has to agree to take it back. It seems the schemes that are paying out small amounts don't want the cash back (it's off their books now) so it kinda makes a mockery of the cancellation period my company offers. We are looking at ways to help these clients however as things stand we are not allowed to pay these smaller amounts out to them so we are seeking advice from the HMRC as to the best way forward. I can understand people with small pots wanting to take their money and run, I really can, but people with big pots may end up in trouble if they underestimate their life expectancy as has been reported in the news and end up skint unless they are sensible and have worked out a plan. This has not been thought through at all and it just an election winner with the elderly. My personal view is (and this is just my view) I would not buy an annuity, the return you get for what you put in is rubbish in my opinion. I am looking to retire at 57 (wife will be 55) which is 15 years away. We reckon if we don't go too mad (bearing in mind we don't have a mortgage or debt) we can save somewhere around 190k between now and then. If I were to put that into a joint purchase life annuity (one that uses your own funds) on current rates we would get 12k per annum between us which frankly is crap. My plan is to take our savings, do 2 x £35/40k premium bonds and split the rest between banks, keeping under the FSCS limit of 85k per institution. Then when we retire we can use this money to live on until company pensions and state pension kick in. This is of course assuming I have a job to go to for much longer. Thankfully out of 48 members of staff, I am in the top 5 of knowledge of the department so now I just have to make sure I make myself as indispensable as possible. Before I get slated, I would point out I only work for the company in setting these up, I do not offer advice to try to take people's money. I am just an office new business pleb in a fortunate financial position.
Listened to an old girl on the radio who had to buy an annuity , as requested by her pension fund that she had paid , and she got 4k a year for 97k payment. Not right that people who have the sense to pay into a fund for their retirement are made to do this .
If you are young enough and can save a bit you should think about P2P savings such as Zopa now giving 5% guaranteed interest and have interest re-invested. This will soon be entitled to be an ISA so tax free. https://www.zopa.com/member/129ea801c520 Steve
I'm in two minds, and consider myself reasonable financially aware. I'm not convinced that people appreciate the risks of not buying an annuity. The main possible alternative in my mind (i.e. low risk, relatively stable return) would be property. This is great if there's a reasonable pot to buy enough of a property to pay what you need. However, looking at it yesterday in our area the yield was looking around 5% on rental properties (i.e. £100k studio flat would rent for about £400pcm) so back to the level of the annuity in ducati2242's post above but with more risk (i.e. keeping the property fit to rent, agents fees etc.). The flip side is that if the majority of pensioners buy property then prices will increase giving a capital gain for those buying early, but this will then be a blow for first time buyers as typical rental properties are at the cheaper end of the market. Apparently the Daily Mail reckon property prices are increasing 30% due to this, but that can only be a guess....... If prices do go up the property yields can only worsen increasing the risk. On the news they did say that lower annuity volume would hit the return on annuities. Not sure I could see the logic in that so perhaps Fitzjnr could explain? Is it just that lower volume equals less risk spreading and therefore lower returns?
Let's not overstate the announcement because all it's done is add another choice to a list of otions. It has come too late for me as I have just entered into a contract with an annuity provider. My choice was to use the open market option and my relatively small wedge after taking 20% tax free is paying about 6% gross for life. That doesn't seem too bad to me. There is an old addage that you can lead a horse to water but you can't make it drink and that is true for many people who can't be arsed to actually do something about their investment even when the providers are abliged by law to tell you what options are available and as in the case of Friends Life with me, tell you that you are likely to get a better return from a different provider. Competition is key and this government needs to repeal the legislation that forces people to use a system that has been stifled because it didn't have to compete. Just my oipinion as a pensioner. Andy
I don't pay in to a pension as those I have been part of in the past have been terrible investments, and seem to be contributing far more to the retirement plans of the administrators and people who work in finance than my own. It's a con while putting money in, and a con when taking money out. The only appeal is the 40% tax relief, but even then it's not been an an attractive investment, which is an indication of how bad the pension industry has become. This budget change is very positive, as I would be happier to put money aside in cash, with 40% tax relief, and no idiot investors to squander it while taking hefty admin charges for the privilege. However, this budget change also shows the government can change the rules on a whim, so you can put money in based on one set of rules, but when you come to take it out, the rules are likely to have changed all over again, so I'm still not persuaded. I'm investing in superbikes instead.
Indeed. The Income Tax issue is central to the whole policy, but is hardly mentioned in the media. The 'pension pot' means money which, as a concession, you have been allowed to receive without paying income tax on it. That is why there have always been restrictions on what you can do with it later. If you have paid income tax on all your income, and saved some of it, you have always been free to do whatever you like with those savings later on. The moaning about people having been so unfairly "forced" to buy an annuity always omits to mention the crucial point that those people never paid income tax on that money in the first place; and they took the money tax-free on condition that it would later be used to provide them with a retirement pension.
Pete 1950 - it is not the whole pension pot that one takes tax free. There is tax relief on what is paid into a pension. On retirement (from age 55 onwards), for most defined contribution pensions, you can take up to 25% as a tax free lump sum. The balance of the pension fund after taking tax free cash is then what is used to purchase an annuity (or provide an income under the capped drawdown or flexible drawdown rules). The income payments under an annuity or taken under the drawdown rules are taxed at the recipient's income tax marginal rate. It's not the case that the whole pot is tax free both on paying in and then taking out the money.
I agree that people who have paid income tax on the income they have received ought to be able to do what they like with their money - as they are, and always have been. But that is not the topic under discussion. The so-called 'pension pot' consists of income which people have received without paying income tax on it. That concession was allowed for the reason, and subject to the condition, that the pot will be used to fund the peoples' retirement.
Indeed. No-one has suggested that the 'pot' is tax free both on paying in and then taking out the money. The point I was making is that all the money going into the 'pot' is income upon which no income tax has been paid. Therefore the money in the 'pot' cannot be regarded as money which is available for the person to spend at their discretion without limit and without paying tax. It is subject to conditions, and it is surely reasonable for it to be subject to conditions. It is perfectly true that, as you say, pensions received in retirement are income upon which income tax is payable at that time, whatever the source of the pension. No-one has suggested otherwise.
