Drawdown drawbacks

As drawdown clients get older they face increasing risk when it comes to maintaining their income levels, MGM Advantage has suggested.

The firm compared income available from a £100,000 pension using a drawdown product and an investment-linked annuity, and found that the annuity would pay the same level of income as the drawdown but with a lower level of risk (or a higher level of income with all else being equal).

The comparisons the firm considered compared clients aged 65, 70 or 75 through to age 85 and 90.

MGM Advantage Pensions Technical Director Andrew Tully explained that as age increased so did the risks of drawdown, but options outside of drawdown do exist.

Tully did stress that whilst investment-linked annuities could help, they would not be for everyone as some people like to retain access to their fund.

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Source: Banking Times

The rise of the non-advised channel

Ten months after the introduction of the Retail Distribution Review (RDR), and we are beginning to get the hard facts behind how the annuity market has changed, and how people are buying annuities through different channels.

The percentage of money coming through the advised segment of the market has been slashed from 61% last year to 37% for the first six months of this year. Instead more and more people are going through the non-advised route; up to 52% from 32% last year.

The rise in non-advised is partly because there are more annuity desks to choose from. Household names have recently launched offerings, and a lot of time and effort has been invested in these services.

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Why Pica's new directory matters

More value is lost from the pension system at the point of retirement than at any other stage of the retirement saving journey.

For years, investors have been buying poor value and inappropriate annuities. This is because they have not enjoyed the benefit of having an intermediary help them to shop around the market and find competitive terms for them.

 

There is an additional problem though in that many pension pots are very small, half are worth less than £20,000 at the point of annuitisation, whilst nearly 30 per cent are worth less than £10,000. For these smaller pension pots in particular, it can be a problem for investors to find an intermediary who can help them.

This is where the Pica (Pension Income Choice Association) directory comes in. The directory is free for intermediaries to register with, it is free for consumers to use, it carries no advertising or click through costs. It is a not-for-profit initiative to bring together industry solutions with consumer demand.

Please follow this link to read the full article. 

To find out more about PICA, click here

Source:  MoneyMarketing, Tom McPhail

The dangers of pension liberation

Source: Money Market

If you have money worries and a huge pension pot sitting in a bank account, releasing it is tempting; this is bad news

 

Seems an attractive option for people with cash worries; there are big charges

 

If you have money worries or unpaid debts it can be frustrating to have a lot of money tied up in your pension, but think twice before trying to unlock the cash.

You can’t touch your company or personal pension until age 55, but some rogue advisers have been promoting a way of getting at your money before then, called ‘pensions liberation’. This can seem an attractive option for people with severe money problems, but hefty charges and tax penalties could end up wiping out all of your pension pot.

Under pensions liberation, an unregulated adviser will typically take control of your entire pension, convert it into a bond, then lend half the money back to you as cash. You will have to pay both the loan and interest in full before you retire. The adviser may call it a ‘pension loan’, falsely claiming you are only ‘borrowing’ the money in your pot.

City regulator the Financial Conduct Authority has warned that any scheme offering to help you release cash from your pension before age 55 “is almost certainly a scam”.

It may sound attractive to people in financial hardship, but the huge charges and potential tax penalties can wipe out your entire fund, says Andrew Tully at retirement specialists MGM Advantage. “The companies behind these typically charge huge fees, between 20% and 50% of your pension fund’s value. Even worse, if HM Revenue & Customs find out you have taken out one of these unauthorised schemes, they could hit you with a tax penalty of up to 70% of your money.”

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