# UK Budget - Pensionsers don't have to buy annuities anymore



## Daddy (19 Mar 2014)

I read with interest what happened today in the budget.  Millions of savers are to be given access to their pension pots from age 55 and to manage their own pension pots.  Their calling it the death of annuities over there.   Are you listening Mr Noonan.  Insurance companies shares took a bit of a hit.  Bring it on here.  Has been welcomed by all savers over there.


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## Jim2007 (20 Mar 2014)

I do not see this as a positive move for pensioners - allowing pensioners to manage their own pot will result in more fees for the asset managers and advisors and I would not be at all surprised to find after say 10 years or so, the average pensioner's savings have been whittled way through fees and poor investing choices, while the burden on the state grows as pensioners end up poorer.

If any thing this is a big boost for the asset managerst and advisors who suddenly have been given acces to a large fee base.  Remind me again where the PMs friends work....

There is no doubt that pension reform is needed in the UK and Ireland, but this is not it.


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## Bronte (20 Mar 2014)

George Osborne and Pensioners 1
Insurance industry 0

I think this is absolutely great news indeed.  Why shouldn't people who have been careful all their lives, who have diligently saved, be trusted and allowed to spend their hard earned money in the way they see fit.  Instead of being forced into the grips of the insurance industry and their useless annuities.  

A very welcome shake up.  I imagine it will give a boost to the UK economy as people decide to do a little bit of spending, perhaps a holiday, car, extension, money to the grandkids etc.  Better in your own pocket then losing it all in retirement when you die after a couple of years.  

I see there is also a great boost to savers as well, and in addition a boost to their Isa's.


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## Bronte (20 Mar 2014)

Jim2007 said:


> Iallowing pensioners to manage their own pot will result in more fees for the asset managers and advisors .


 
They've been creaming it for years to the detriment of UK pensioners.  Those sensible people who have saved will do far better with their own money than anything they could get out of an annuity.


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## Sunny (20 Mar 2014)

I haven't read all the detail yet so can't comment on whether it is a good idea or not (initial reaction would be positive) but I really admire the Brits sometimes. If we were to introduce something similar here, we would have 15 years of reports and expert committees set up to examine the issue.


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## Jim2007 (20 Mar 2014)

cashier said:


> People with small pots got a very raw deal with abysmal rates being paid out



The rates are not unreasonable, when compared to the rest of Europe! When calculating the expected pension in DE/A/CH the usual rate used is around 3.5%.

The reality is that people in the UK fail to save enough and that that they do save gets whittled away by pension fund fees, hidden and otherwise.  This change will do nothing to fix that problem other than move the fees from the insurance companies to the asset managers and financial advisers.


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## Jim2007 (20 Mar 2014)

Bronte said:


> Those sensible people who have saved will do far better with their own money than anything they could get out of an annuity.



Well in the land of the dollar where managing your own pension money is the norm, the findings suggest otherwise - the last figures I saw, a few years ago, suggested that the average American couple had a net worth of about 20K when hitting retirement age...

Give people access to their pension capital and they will spend it.  The will always find a good reason for spending money!

There is no doubt that pension reform is badly needed, but this is not it.  This is an nice bit of electioneering on Cameron's part - his friends and backers in the City get access to a new fee source and the great unwashed get to feel that they are now better of 'cause they are all going to get a much better return on their money, ya right!


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## Bronte (20 Mar 2014)

Ok Jim, you basically think most people are silly with money.  But you did mention reform is needed, what do you think should have been done?


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## Steven Barrett (20 Mar 2014)

We have been allowed to manage our own pension funds for the last 15 years. Members of company paid pension schemes can access their pension funds from age 50. 

As for fees, you can always do it yourself if you want to avoid advisor fees. In doing so, you should be able to avail of lower management fees that life companies offer for nil commission cases. 


Steven
www.bluewaterfp.ie


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## Gerry Canning (20 Mar 2014)

Very interesting move ; 

The average Mr Grey voter will be pleased in that Mr Grey thinks it is good he now has freer access to his pension pot.
The well-heeled Grey voter already has proper advice, so doesn,t matter to him/her..
Mr Conservative MP will sell it as a bonus.He will neglect to say that the main reason pension annuities were so poor and that for the past 5 years pension annuities are so poor is because his Government enginnered low interest rates.

On balance though , if people are half-sensible with their pension pots it is a good idea.
I would hope it will jolt the big pension annuity providers to give better pensions.I can only surmise that since this big pension providers shares have dipped circa 8% that they had been conning Mr Grey.

Bronte/Jim. Reform in Roi thus far has had our Mr Noonan raiding pension pots.


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## Conan (20 Mar 2014)

Sunny,
In some respects we are actually 15 years ahead of the Brits. When Charlie McCreevy introduced Approved Retirement Funds (ARFs) back in 1999 it was a very significant change. It has been extended in more recent years so that any pension holder with a DC arrangement does not have to buy an Annuity. So the change in the UK is actually the Chancellor copying Irish regulations (at least in part).
ARFs or UK drawdown proposals are not universally better than Annuities. Choice is welcome, but the decision as to which is better for any client is not that simple (despite what politicians might articulate). Choice means advice. 
And despite what some might advocate in terms of "people" being better able to manage their own money, there is lots of evidence to the contrary. The attraction of a pot of money and easy access now, rather than being spread over an extended period of retirement may prove impossible to resist for some. But people are entitled to make their own financial mistakes (so long as they dont come crying to the rest of taxpayers later seeking a bailout).


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## Gerry Canning (20 Mar 2014)

Conan; good comment,
On ARFS , customer must take 5% a year and if he wants the rest he must put it into an annuity. 
Has the positive effect that customer ,knowing that annuities are poor these days will be inclined to hold off putting his ARF into an annuity, he will then hold off taking pension as long as he can. That should have the effect of increasing his annuity.

(And Conan , of course if things go belly up Mr Customer will call on Mr Taxpayer)  .


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## Conan (20 Mar 2014)

Gerry,
An ARF holder can in fact encash the full amount at any time (subject to marginal rate tax). The 5% drawdown is simply the minimum they must take as income in any year.
Annuities appear to be poor value due to low interest rates (because Bonds are mostly used to back annuity funds) and increasing longevity. Whilst interest rates may rise in the future (and thus enable better Annuity rates), longevity rates are unlikely to decline. 
Obviously if one opts for the ARF initially (with a minimum of 5% income drawdown), one could convert the ARF into an Annuity at a later/older age and thus get a better Annuity rate (assuming that the ARF has not been exhausted in the meantime).


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## Daddy (20 Mar 2014)

Conan:  Just to mention I think the marginal rate in UK is now coming down from 55% to 20% for those accessing their pots.  Marginal rate here is 41%.  So great incentive there to take it out.   I think in general though that people who saved hard over the years and now getting this opportunity over there will not be thinking of flittering it away too handy.


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## Gerry Canning (20 Mar 2014)

Conan , 

Thanks for the clarity on the ARF bits.
I keep getting educated , maybe by retirement I will have wisdom !


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## Steven Barrett (20 Mar 2014)

Daddy said:


> Conan:  Just to mention I think the marginal rate in UK is now coming down from 55% to 20% for those accessing their pots.  Marginal rate here is 41%.  So great incentive there to take it out.   I think in general though that people who saved hard over the years and now getting this opportunity over there will not be thinking of flittering it away too handy.



In my experience, most ARF holders do not take out any more than the 5% imputed distribution amount each year, so you don't get people flittering away their retirement fund. 

That being said, the ARF was only open to company directors/ self employed for a long time and they have had other sources of income as well as their pension pot. 

Now the ARF option is open to all defined contribution pensions (with the exception of some BOB's), we will have to wait and see how some ex PAYE workers get on with the ARF option. We might see very different results. 

One thing I would like to see this government get rid of is forcing people who take the 150% tax free cash option to purchase an annuity. For people with lengthy service, the difference between 150% final salary and 25% of the pension pot can be significant. But they don't want an annuity at the end of it.


Steven
www.bluewaterfp.ie


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## Conan (20 Mar 2014)

Daddy,
From my initial reading it suggests that any drawdown will be taxed at marginal rate (whatever that is). I dont think the 20% tax rate applies to all drawdowns.


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## facetious (21 Mar 2014)

Jim2007 said:


> Well in the land of the dollar where managing your own pension money is the norm, the findings suggest otherwise - the last figures I saw, a few years ago, suggested that the average American couple had a net worth of about 20K when hitting retirement age...
> 
> Give people access to their pension capital and they will spend it.  The will always find a good reason for spending money!
> 
> There is no doubt that pension reform is badly needed, but this is not it.  This is an nice bit of electioneering on Cameron's part - his friends and backers in the City get access to a new fee source and the great unwashed get to feel that they are now better of 'cause they are all going to get a much better return on their money, ya right!


Well, I have a UK private pension pot of about 32k and I was offered, 2years ago, an annuity of 26.05 (sterling) a week in spite of it having been quoted as an enhanced annuiity.

To get back my pension pot, I would have to live to 88 years old. I have no relatives to whom I could leave anything that was left over. 2 years ago I was told that I have a 48% chance of seeing year 5 without the cancer returning. I have had intensive chemo and a bone marrow transplant and it is doubtful if at the age of 70+ years if I could manage another one. 

God willing, I will manage to make April 2015 so that I can take my pot as a lump sum and do a few thing that I would like to do, that I just was not able to do while working.

Roll on April 2015.


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## Bronte (21 Mar 2014)

facetious said:


> . 2 years ago I was told that I have a 48% chance of seeing year 5 without the cancer returning.
> 
> God willing, I will manage to make April 2015 so that I can take my pot as a lump sum and do a few thing that I would like to do, that I just was not able to do while working.
> 
> Roll on April 2015.


 
You are the type of case I was thinking of earlier on. When you get the money enjoy it and leave nothing behind. Best of luck with it.  

Jim I don't think the comparision with the USA stacks up. There is not a background of saving over there, life is a lot tougher as anything going wrong means you lose your home, and medical bills can make you destitute, plus lots of people have to work 3 jobs just to survive. UK pensioners would be a sensible bunch I would have thought. They are quite frugal etc.


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## facetious (21 Mar 2014)

Although I could have bought an annuity, I discovered that I could take the full pot when I was certified as to having only six months left to live, so that was my intention. Now I can have it earlier and be able to make better use of it.


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## facetious (21 Mar 2014)

Thanks for that, Cashier, and for the good wishes.


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## irelandseye (24 Mar 2014)

Best of luck Facetious, the money was no doubt hard-earned, hope you enjoy spending every cent!


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## Bronte (24 Mar 2014)

cashier said:


> I would say that they were every bit as bad as the endowment mortgages scams.
> 
> 
> For those who are interested, these are some of the changes brought about by UK budget 2014


 
I agree with you that it was a scam. Very interesting post Cashier. 

Where the UK goes hopefully Ireland will copy, particularly as the middle classes over there are really happy with the changes so I expect middle class FG to follow. 

Particular like the 10K bond at 4%, that will be very popular, and the right to 'purchase' state pension entitlements. 

There was a article in the Sunday Times this weekend and a survey.  70% of people will keep their funds for when it is needed.  About 20% will take some of it to spend immediately, but the main point is very few are planning on going mad.


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## Conan (25 Mar 2014)

Perhaps in a survey people will suggest that they of course will be responsible with their funds. But when the funds become available, that might be a different matter.
It is also worth bearing in mind that for individuals in "financial difficulties" the cash pot will be attractive to creditors (could seek to force the retiree to encash everything to pay down debt) whereas a modest monthly income might not be so attractive.


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