pension craziness - 42yr

9 posts in this topic

Just received the pension statement from a very small private pension fund my wife has in the UK.
They say the value of her pension pot is expected to reach X by the time she turns 65, and they will then pay an annual pension income of Y, with X/Y=42yr. That is, if she passes away before her 107 birthday the total payout will be less than the value of the pot. And this turns even more extreme if you add up inflation, or the fact that while they will be paying this income, they will keep the rest of the pot invested and will most likely benefit from further growth.

 

I understand this number, X/Y = 42yr, is not the whole thing and the major advantage of a pension is the assurance the income will not cease while the person is alive. But still, X/Y = 42yr is theft.

Of course one needs a pension, but when you see numbers like this, investing in a pension that will eventually pay an annual income is not the way to go.

One need insurances. But not at every price.
 

What is your opinion?

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Normal, my wife is in a similar position. They intend to pay her 2k a year which if she doesn't live beyond 85 means they keep about 50% of her funds. I have a fund with 75k in it I think, I start collecting at 65 and will be paid about 200 GBP a month, that's 2,400 a year. Taking the average life expectancy for men is around 82 I believe means that they will be 2.4k for 17 years which works out at just under 41k. That's a very basic calculation not taking into account inflationary rises or investment returns. It makes you think it might actually be better to just draw down the fund annually. Of course, you may live a lot longer than the average but that's the risk you have to take.

 

A lot of people invest in property instead. A friend of mine has done that for the last 25 odd years, he uses the rental income from each property to service the costs and is relying on the value of the properties at time of sale to fund his retirement. Of course he does have other pensions such as state and private.

 

As an after thought, will your wife receive a UK state pension and a German state pension as well?

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As a matter of fact, we consider our overall financial situation very comfortable. That's not what I'm complaining about.

Still, with this number, 42yr, I consider annuity-paying private pension as theft. A generous gift to the financial industry.

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25 minutes ago, French bean said:

I start collecting at 65 and will be paid about 200 GBP a month, that's 2,400 a year.

 

And you will be taxable on that here plus (if you are with public health insurance) they will want their cut as well.

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5 minutes ago, HEM said:

 

And you will be taxable on that here plus (if you are with public health insurance) they will want their cut as well.

I know and there doesn't seem to be anyway out of it. I suspect it's the health insurance that's going to hurt.

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If it's a UK fund, can you not opt for drawdown? Many people opted for SIPPs for exactly this reason. Draw out whatever you need each year (typically 3% to 4%) and then whatever is left over is inheritable to the remaining spouse/dependants.

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And don't forget that if it is an annuity, you can shop around and buy the annuity from anywhere.

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4 minutes ago, GaryC said:

And don't forget that if it is an annuity, you can shop around and buy the annuity from anywhere.

 

Of course you can "shop around". But if the first provider offers X/Y=42yr to a 65yr old person, I find hard to imagine any other provider will offer anything decent. But maybe I'm wrong.

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