Occupational pension strategy- Trapped into taking an annuity?

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Bern78

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Hi

I have been looking into my husband’s pension and was browsing through the annual statement.

He is in an Occupational pension with Zurich . The investment fund is Dynamic Pension & Invest. That part seems fine. The default investment strategy is PensionStar (Annuity) Investment Strategy. When I look this up I see that Zurich have one for an ARF also.

Does this mean that when my husband retires this pension that he has to go down the annuity route ? Apologies if this is a ridiculous question. This is not something we want. I look at the PensionStar (ARF) Investment Strategy and the investment strategy is only slightly different and comes down to the last 5 years of investment. However I do not want my husband to be trapped into taking an Annuity at retirement as an ARF looks more appealing.

Thanks
 
Hi Bern78,

No, your husband is okay in that he’s not restricted. They’re investment strategies with those endpoints in mind, e.g. the strategy which targets an annuity probably derisks (i.e. more bonds and cash) as your husband nears retirement.

So he’s not tied to buying an annuity but the investment strategy is not fit for purpose basically.

Gordon
 
Thanks a mill Gordon. I get what you mean re the investment strategy being not fit for purpose.

Incidentally I find a lot of occupational pensions are very conservative- mine is too. They move to reduce their equity exposure way earlier than I believe is necessary. I understand the need to move when close( not too close) to retirement but moving when you have 15 to 20 years left seems a bit crazy.
 
With respect Bern78!!,

The investment strategy being discussed is the "default" strategy. In other words, you/your husband haven't bothered to tailor the fund in line with what is appropriate to your personal circumstances. The "default" is not a "best case" solution for all - it's simply an investment pathway for those who display insufficient interest to decide on a personalised investment strategy!!

It follows that the glide path in question often targets annuity purchase - the thinking being that if an individual can't be bothered enough to consider which fund to invest in pre-retirement, are such individuals really going to suddenly become all interested in such matters post retirement (and invest in an ARF)?!
 
As has already been mentioned, it is just a default investment strategy that moves towards bonds as the policy gets closer to retirement.

The PensionStar ARF strategy stops at the Balanced fund and doesn't reduce risk further. The rationale is that even if fund values fall nearing retiring, you just transfer the fund to the ARF. It misses the point of tax free cash. If you had a fund of €1m and it fell to €800k, the lump sum would reduce from €250,000 to €200,000 (Before anyone points it out, there is a tax liability of €10,000 on the €250,000 lump sum :rolleyes: ). This is a significant amount of money and is of little comfort to a client when their advisor says "don't worry about that €40,000 loss, the fund fell in value but you are buying low too!! Happy days".

Loss aversion is a human behavioral trait, so people prefer to secure the pension and forgo potential gains up to maturity than run the risk of the fund falling in value in that same time. They see the ARF as a completely new start and not a continuation of the pension that they have been paying into for decades.


Steven
www.bluewaterfp.ie
 
elacsaplau said:
With respect Bern78!!,

The investment strategy being discussed is the "default" strategy. In other words, you/your husband haven't bothered to tailor the fund in line with what is appropriate to your personal circumstances. The "default" is not a "best case" solution for all - it's simply an investment pathway for those who display insufficient interest to decide on a personalised investment strategy!!

It follows that the glide path in question often targets annuity purchase - the thinking being that if an individual can't be bothered enough to consider which fund to invest in pre-retirement, are such individuals really going to suddenly become all interested in such matters post retirement (and invest in an ARF)?!
Click to expand...

Point taken and yes I hadn’t really looked into the options that my husband can take. I work in a bigger company and the options are clearly set out for each person to see (risk rating, fund etc) tho I do appreciate that is just because of where I work and it is no excuse not to look into other options which I will do now for my husband to make sure we are getting the most suitable fund for our circumstances.

I do agree that a large portion of people don’t look into where their fund is invested or maybe it’s just people I know.
 
Fair play Bern78,

Whilst my earlier point is valid in part, I was a little brusque in my previous post - sorry.

I agree that it would be worthwhile to review your investment strategy - objectives, options, etc. If your intention is to go the ARF route, you are right that it doesn't make sense to invest in an annuity based default fund.
 
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