Everyone has different circumstances, being diagnosed with cancer last year ( since resolved) means I am now twice as likely to get cancer again at some point. I am only 60. My choice was an annuity or 40x that for drawdown. You can guess which one I took. This is now outside of my estate and can be passed on to loved one's ( providing I haven't spent it all before I depart) :-)
Your post seems to suggest you will receive 40 times MORE MONEY by opting for drawdown than you would have got with an annuity ? Would you care to back that up with figures ??
@@scabbycatcat4202 ok, let's say £20k per year and if I die next week because I am not married my partner receives nothing and my pension stops ( policy rules) or I can take £800k , and take 25% of that as cash and draw down the rest as I wish whilst I am alive. Should I die my partner through my will picks it all up tax free.
@@S2000Y Ha , exactly as I thought . In no way is that 40 times " More than an annuity!! What you mean is your CETV is 40 times your annual PENSION.You could buy an annuity which would give you £24000 per year for the rest of your life with 100% transfer to your partner when you die Then with the 200k lump sum you could invest in risk free BONDS to give a monthly or annual top up to your 24k pension. Totally risk free- no financial advisors fees and not at the mercy of market fluctuations . If you live a long life there is always the danger you will run out of money with drawdown.
Average UK pension pot is £120k, are you really suggesting you need to pay for financial planning on that small amount? Glad you came clean and said that annuity’s have been a ‘rough’ deal for consumers....shame the industry has been selling them for decades.
Average UK pension is nearer to £30k, last I heard. Annuities are right in some circumstances, but fewer than ever are being sold. And hardly any since pensions freedoms of 2015. Careful not to tar all advisers as baddies - we’re not!
I dont believe the expenditure you mention - bills, car, holidays, etc - is covered by an annuity even if index linked. Because the index doesn't match the increase in costs of running cars and the like and the reduction of the purchasing power of the pound due to unprecedented levels of money printing. Which continues at a pace that is effectively stealing the futures of the nation. Make your money and move elsewhere needs to be added to the financial planning advice ! I've been receiving an annual statement for an impending local authority pension. On a 5,500 gbp lump sum; the increase over the year was 20 gbp. That is what they are saying inflation is running at.
The " flexibility of retaining control "......... Which has all the pitfalls of a market crash, financial advisors fees, the element of gambling your future, the insecurity of your income. Just ask some of the people I know who have used drawdown and ask them how much they have lost from their pension fund since covid began and how much they are paying to financial advisors!!
GAR, check if your pension has a GAR. If you have GAR (Guaranteed Annuity Rate) then you often get a lot more than you would if you transferred it or do a draw down. Also check the amount you are going to get and see if you are going to go over the Tax allowance, you might be better taking it earlier (and slightly less) for longer, but putting it into ISA's.
I might have missed it but I find the added SECURITY is a big consideration when deciding either drawdown or annuity. Don't forget although annuities are out of favour at the moment- you can still achieve 4% with an annuity ( October 19' ) which is a full 1.4% over and above hight street products which is TOTALLY RISK FREE . Also with any drawdown scheme you will have to sign a declaration which states " THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MIGHT NOT GET BACK THE MONEY YOU HAVE INVESTED "- Let the buyer beware !!!
I agree, and I make this pretty clear at 3:08 - It's too simplistic to say one can achieve 4% on an annuity because it depends on many factors such as age, health etc, but mostly on the form of the annuity itself. A 4% annuity rate which is level, is going to be pretty useless as inflation erodes it buying power over time. The video was answering a specific question from a viewer, and is not intended as a thorough dealing with the complex, nuanced question of annuity vs unsecured pension in its many forms. This is why pretty much anyone would be well-served seeing a competent financial planner at this crucial decision-making stage. So, while I agree with pretty much everything in your comment, @scabbycat cat, people need to know that there is a lot at stake, and in many cases, buying an annuity could be a worse decision than opting for the growth *potential* of a drawdown plan.
@@PeteMatthew " A 4% annuity rate which is level, is going to be pretty useless as inflation erodes it buying power over time"............... Just about EVERY economic forecast ( OECD, Bank of England , the IMF, the EU ) is forecasting low inflation for the next 30plus years. Now that we have truly independent central banks with inflation targeting there is every reason to be confident about this. So to use the term 4% " pretty useless over time " is an extremely misleading comment.
Can't really compare an annuity against another product. The annuity provider can pay 4% because there's payments from capital, where as other investment returns are purely income while maintaining the capital the capital value (or increasing it).
My (apparently healthy) mother lasted three years after starting her pension at age 60. Her husband received a reduced pension for another two years, then there was nothing more paid. Had she been able to use drawdown instead of being forced to take an annuity, the funds would have lasted for many more years, and there might even have been leftovers for their families. Even if the market dropped a lot, I think they would have been better off. On the other hand, my mother-in-law lived to 106. She would have had her money's worth!
@@craftypam9992 Sorry to hear about your mother. The annuity we set up was a joint life annuity which means if either of us dies then 100% of the payments are transferred to the other surviving partner. Security in old age is a great thing to have.
Oh I would to go to ask Greg but I have a final salary pension coming up next month. I figured that it is probably better to take the 25% tax free lump sum than just the it all in monthly income. But, then I found out this could "transfered' . And so I had a meeting on Friday to discuss it. What he said the options were, were either an annuity or drawdown pension. He ruled out the annuity and said drawdown is best and as I was risk averse the money would be put into ' Gilts and Bonds' .and all of a sudden my tax free lump sum had increased drastically by another half as much as the one I would get from the final salary payment. I thought it would be enough deposit for a BTL . But I would have to meet every 6 months for the rest of my life to discuss tactics and chose my investment. To be honest I am confused. He wants me to sign a form for the next meeting to give permission to get information from the company with now. I am scared they could scam Mr and secondly he says gilts and bonds will go up by 3 to 4 percent a year and I should draedow n no more than the 4 % of the lump inorder for the money to grow. That's fine because it seems that is all I need to compare with the other pension. I don't know what to do. And from 1st October the FCA have recomended those 3 meetings should be charged. Seems like they think the transfer values are to high.and people have been ripped off doing all this especially the workers at Tata Steel.
Annuities fix your income and so you are locked in and can't adjust for rising cost of living so you annuity income will drop with inflation. Your drawdown method leaves the fund invested with some risk but no more than you accepted when investing in the first place and so can at least attempt to keep pace with inflation etc and you can adjust to suit your needs.
The cash lump sum is tax-free when it comes to you. Annuity income is taxed as if you'd earned it. You'd get payslips and a P60, just as if you were an employee of the pension company, essentially.
I am anything BUT a financial professional, but my advice would be to discount the so-called state pension entirely. If you get it, bonus, but budget for none of it. Government is moving the goalposts to the extent that anyone under 40 now won’t likely get it until 70+ and it will be dog shit by then anyway.
I agree that if you can afford to do so, budget assuming that you wont be eligible for the state pension, but although 20 years ago I used to think many of the thoughts you have expressed to my surprise I no longer think like you. I now believe that the state pension will give me about 1/3 of the income I want in retirement. I think a 40 year old will be able to draw the state pension at age 69 or 70 (that is a complete guess that may be shown to be completely wrong the next time Rishi Sunak gets up to speak, but they seem to increase the state pension age by a year every decade. I have got my state pension forecast and learnt that if I contribute for 4 more years, at age 66 and 9 months I will get the "full state pension" of £9,339 a year IN TODAY'S MONEY. It goes up by at least 2.5% per year so it keeps pace with reported inflation. I calculate that I would need at least £233,000 in a pension pot to "safely withdraw" £9,339 a year. That is a huge amount not to have to get into my pension
I honestly can see a future where, like care costs, if you have enough personal assets, it wall fall in individuals to cover their own retirement costs. In other words, it will be means tested. I have the same view as you - rely on no-one.
95 scheme? Are you referring to the NHS 1995 scheme? If so, it's a defined benefit pension and the video here doesn't really apply. You'll get an income and the option of a lump sum at retirement, depending gon your salary and your length of service.
@@PeteMatthew HI Pete, TY for getting back intouch. YES its NHS 95 scheme. I just did some further research and found out that the 95 scheme is an ANNUITY scheme only. The NHS 2008 scheme allows me to move it into a potential drawdown investment. I was hoping to control all of my schemes as a drawdown but it looks more likely that i will only be able to do this on 2 of them (I also have a retireready pension i'm topping up with).
Not out of date, really. Most people don’t buy an annuity these days though the do still have their place. The video is only a couple of years old and nothing has changed with pension legislation since then
Hi I have a Civil service Nuvos pension, i would like to retire when im 55 but cant see the option for drawdown on this pension? Is there anyway i could access the pension? Regards Paul
The Civil Service pension is a Defined Benefit pension so drawdown doesn't apply there. This video will help to explain the differences: ua-cam.com/video/E2RDvUiRRG8/v-deo.html
Hi i have a question. im a uk ex pat living in Australia. if I was wanting to return to the uk at 65 or 70 say ans bring 500000 pounds with me. what if any options do I have for retirement products?
Merry Christmas Pete may i ask a question , when I die and I had money in my bank account what is the procedure so my N O K can retrieve it on my behalf , many thanks
Bank accounts are frozen when you die, and while small amounts may be able to be released, for example to pay for your funeral, your NOK may not be able to access the money till Grant of Probate is received.
A refreshed video in this subject for 2022 would be good & interesting especially how things have changed in the world.
Noted, Jackie!
Everyone has different circumstances, being diagnosed with cancer last year ( since resolved) means I am now twice as likely to get cancer again at some point. I am only 60. My choice was an annuity or 40x that for drawdown. You can guess which one I took. This is now outside of my estate and can be passed on to loved one's ( providing I haven't spent it all before I depart) :-)
Hope things go well for you mate
Yes hopefully your ok ,but no brainer ,tbf even with or without health problems
Your post seems to suggest you will receive 40 times MORE MONEY by opting for drawdown than you would have got with an annuity ? Would you care to back that up with figures ??
@@scabbycatcat4202 ok, let's say £20k per year and if I die next week because I am not married my partner receives nothing and my pension stops ( policy rules) or I can take £800k , and take 25% of that as cash and draw down the rest as I wish whilst I am alive. Should I die my partner through my will picks it all up tax free.
@@S2000Y Ha , exactly as I thought . In no way is that 40 times " More than an annuity!! What you mean is your CETV is 40 times your annual PENSION.You could buy an annuity which would give you £24000 per year for the rest of your life with 100% transfer to your partner when you die Then with the 200k lump sum you could invest in risk free BONDS to give a monthly or annual top up to your 24k pension. Totally risk free- no financial advisors fees and not at the mercy of market fluctuations . If you live a long life there is always the danger you will run out of money with drawdown.
Learnt more about annuities in the last 5 minutes than in the last 5 years !
Rates are so low that Drawdown will seem best for most .
Just found you , and I'm impressed at how easily you have explained many of the topics I'm interested in.
Thanks
Thanks Mark - I appreciate it
My gosh ,your views are so easy to follow. Thank you👍
How well you explained this.
Thank you.
your videos have helped me understand more for my parents. thank you so much.
You’re welcome, Kevin!
Average UK pension pot is £120k, are you really suggesting you need to pay for financial planning on that small amount? Glad you came clean and said that annuity’s have been a ‘rough’ deal for consumers....shame the industry has been selling them for decades.
Average UK pension is nearer to £30k, last I heard. Annuities are right in some circumstances, but fewer than ever are being sold. And hardly any since pensions freedoms of 2015. Careful not to tar all advisers as baddies - we’re not!
@@MeaningfulMoney average pension pot in the UK is 30k ?! So are people retiring st 65 and using state then?
I dont believe the expenditure you mention - bills, car, holidays, etc - is covered by an annuity even if index linked. Because the index doesn't match the increase in costs of running cars and the like and the reduction of the purchasing power of the pound due to unprecedented levels of money printing. Which continues at a pace that is effectively stealing the futures of the nation. Make your money and move elsewhere needs to be added to the financial planning advice ! I've been receiving an annual statement for an impending local authority pension. On a 5,500 gbp lump sum; the increase over the year was 20 gbp. That is what they are saying inflation is running at.
Brilliantly narrated - so so helpful
The " flexibility of retaining control "......... Which has all the pitfalls of a market crash, financial advisors fees, the element of gambling your future, the insecurity of your income. Just ask some of the people I know who have used drawdown and ask them how much they have lost from their pension fund since covid began and how much they are paying to financial advisors!!
Great videos following your videos on a regular basis. Learnt so much.
Thanks keep up the good work
Mangal
Thank you Mangal - appreciate your support!
Good content again Pete, I'm really enjoying watching your 'meaningful' videos!!
Ah good, I'm very grateful!
GAR, check if your pension has a GAR.
If you have GAR (Guaranteed Annuity Rate) then you often get a lot more than you would if you transferred it or do a draw down.
Also check the amount you are going to get and see if you are going to go over the Tax allowance, you might be better taking it earlier (and slightly less) for longer, but putting it into ISA's.
I might have missed it but I find the added SECURITY is a big consideration when deciding either drawdown or annuity. Don't forget although annuities are out of favour at the moment- you can still achieve 4% with an annuity ( October 19' ) which is a full 1.4% over and above hight street products which is TOTALLY RISK FREE . Also with any drawdown scheme you will have to sign a declaration which states " THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MIGHT NOT GET BACK THE MONEY YOU HAVE INVESTED "- Let the buyer beware !!!
I agree, and I make this pretty clear at 3:08 - It's too simplistic to say one can achieve 4% on an annuity because it depends on many factors such as age, health etc, but mostly on the form of the annuity itself. A 4% annuity rate which is level, is going to be pretty useless as inflation erodes it buying power over time. The video was answering a specific question from a viewer, and is not intended as a thorough dealing with the complex, nuanced question of annuity vs unsecured pension in its many forms. This is why pretty much anyone would be well-served seeing a competent financial planner at this crucial decision-making stage.
So, while I agree with pretty much everything in your comment, @scabbycat cat, people need to know that there is a lot at stake, and in many cases, buying an annuity could be a worse decision than opting for the growth *potential* of a drawdown plan.
@@PeteMatthew " A 4% annuity rate which is level, is going to be pretty useless as inflation erodes it buying power over time"............... Just about EVERY economic forecast ( OECD, Bank of England , the IMF, the EU ) is forecasting low inflation for the next 30plus years. Now that we have truly independent central banks with inflation targeting there is every reason to be confident about this. So to use the term 4% " pretty useless over time " is an extremely misleading comment.
Can't really compare an annuity against another product. The annuity provider can pay 4% because there's payments from capital, where as other investment returns are purely income while maintaining the capital the capital value (or increasing it).
My (apparently healthy) mother lasted three years after starting her pension at age 60. Her husband received a reduced pension for another two years, then there was nothing more paid. Had she been able to use drawdown instead of being forced to take an annuity, the funds would have lasted for many more years, and there might even have been leftovers for their families. Even if the market dropped a lot, I think they would have been better off. On the other hand, my mother-in-law lived to 106. She would have had her money's worth!
@@craftypam9992 Sorry to hear about your mother. The annuity we set up was a joint life annuity which means if either of us dies then 100% of the payments are transferred to the other surviving partner. Security in old age is a great thing to have.
Oh I would to go to ask Greg but I have a final salary pension coming up next month. I figured that it is probably better to take the 25% tax free lump sum than just the it all in monthly income. But, then I found out this could "transfered' . And so I had a meeting on Friday to discuss it. What he said the options were, were either an annuity or drawdown pension. He ruled out the annuity and said drawdown is best and as I was risk averse the money would be put into ' Gilts and Bonds' .and all of a sudden my tax free lump sum had increased drastically by another half as much as the one I would get from the final salary payment. I thought it would be enough deposit for a BTL . But I would have to meet every 6 months for the rest of my life to discuss tactics and chose my investment. To be honest I am confused. He wants me to sign a form for the next meeting to give permission to get information from the company with now. I am scared they could scam Mr and secondly he says gilts and bonds will go up by 3 to 4 percent a year and I should draedow n no more than the 4 % of the lump inorder for the money to grow. That's fine because it seems that is all I need to compare with the other pension. I don't know what to do. And from 1st October the FCA have recomended those 3 meetings should be charged. Seems like they think the transfer values are to high.and people have been ripped off doing all this especially the workers at Tata Steel.
Annuities fix your income and so you are locked in and can't adjust for rising cost of living so you annuity income will drop with inflation. Your drawdown method leaves the fund invested with some risk but no more than you accepted when investing in the first place and so can at least attempt to keep pace with inflation etc and you can adjust to suit your needs.
QE has wrecked the gilt market so annuities are balls now.
how does the tax work on a annuity and cash lump sum
The cash lump sum is tax-free when it comes to you. Annuity income is taxed as if you'd earned it. You'd get payslips and a P60, just as if you were an employee of the pension company, essentially.
I am anything BUT a financial professional, but my advice would be to discount the so-called state pension entirely. If you get it, bonus, but budget for none of it. Government is moving the goalposts to the extent that anyone under 40 now won’t likely get it until 70+ and it will be dog shit by then anyway.
I agree that if you can afford to do so, budget assuming that you wont be eligible for the state pension, but although 20 years ago I used to think many of the thoughts you have expressed to my surprise I no longer think like you.
I now believe that the state pension will give me about 1/3 of the income I want in retirement.
I think a 40 year old will be able to draw the state pension at age 69 or 70 (that is a complete guess that may be shown to be completely wrong the next time Rishi Sunak gets up to speak, but they seem to increase the state pension age by a year every decade.
I have got my state pension forecast and learnt that if I contribute for 4 more years, at age 66 and 9 months I will get the "full state pension" of £9,339 a year IN TODAY'S MONEY. It goes up by at least 2.5% per year so it keeps pace with reported inflation.
I calculate that I would need at least £233,000 in a pension pot to "safely withdraw" £9,339 a year. That is a huge amount not to have to get into my pension
I honestly can see a future where, like care costs, if you have enough personal assets, it wall fall in individuals to cover their own retirement costs. In other words, it will be means tested. I have the same view as you - rely on no-one.
Does a 95 scheme allow for drawdown or Annuity or both?
95 scheme? Are you referring to the NHS 1995 scheme? If so, it's a defined benefit pension and the video here doesn't really apply. You'll get an income and the option of a lump sum at retirement, depending gon your salary and your length of service.
@@PeteMatthew HI Pete, TY for getting back intouch. YES its NHS 95 scheme. I just did some further research and found out that the 95 scheme is an ANNUITY scheme only. The NHS 2008 scheme allows me to move it into a potential drawdown investment. I was hoping to control all of my schemes as a drawdown but it looks more likely that i will only be able to do this on 2 of them (I also have a retireready pension i'm topping up with).
Enjoy yourself and family from 63-78. From there on you’ll more than likely be creakily slow , winding down and spending less - if you are lucky .
I guess this info might be out of date now in 2021. I am wondering about taking a lump sum of out my private pension fund, it isn't that much really.
Not out of date, really. Most people don’t buy an annuity these days though the do still have their place. The video is only a couple of years old and nothing has changed with pension legislation since then
Keep your works pension, don't let others cream it off for you.
What's the date of this video, please?
November 2018. If you have questions, feel free to ask them here!
Hi
I have a Civil service Nuvos pension, i would like to retire when im 55 but cant see the option for drawdown on this pension?
Is there anyway i could access the pension?
Regards
Paul
The Civil Service pension is a Defined Benefit pension so drawdown doesn't apply there. This video will help to explain the differences: ua-cam.com/video/E2RDvUiRRG8/v-deo.html
Hi i have a question. im a uk ex pat living in Australia. if I was wanting to return to the uk at 65 or 70 say ans bring 500000 pounds with me. what if any options do I have for retirement products?
how much has changed in the last few years?
Nothing material on this subject
@@MeaningfulMoney surely soaring inflation will have a massive impact?
Merry Christmas Pete may i ask a question , when I die and I had money in my bank account what is the procedure so my N O K can retrieve it on my behalf , many thanks
Bank accounts are frozen when you die, and while small amounts may be able to be released, for example to pay for your funeral, your NOK may not be able to access the money till Grant of Probate is received.
Hi Pete. Does an annuity have any life insurance attached?
You can factor in an element of death benefit when you take out an annuity, yes. It’ll reduce the amount payable each month/year, so be aware of that.
The last bit about a crisis will happen was prescient: Covid.
Can I not just keep the money in pot till 67
Drawdown tax free then reinvest into another fund. Avoid annuities like the plague.
This hands drive me insane
Don't worry, you will get it over it; it's just a phase you're going through.
Waffle