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Cash in your Annuity Newsletter 1

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Cash in my Annuity Newsletter 1
30 March 2015

While it is not our aim to bombard you with information, we are keen to make sure we cover the things that are important to you. I have included a couple of important issues from the extensive coverage in the press, as well as offer my own thoughts and concerns about what the future might hold.

If you would like a particular subject covered or if you have any feedback, please get in touch. You can email us at help@best-pension-annuity.co.uk

Since the Chancellor announced the ability for customers to trade in their annuity in exchange for a cash lump sum, there has been much coverage in the press. However we believe the following will be of interest to customers :

Labour confirms they will not change anything in the budget

Shortly after the 2015 budget the Shadow Chancellor Ed Balls said that there was nothing in the budget that he would need to reverse. While not specifically addressing the traded annuity market, it does signify that if Labour end up forming the next Government, they will take the various bills (including annuity trading) through to law.

This means that we are most probably just over a year away from this proposal becoming law. While you may be disappointed with the wait, the good news is that you will have plenty of time to really think through the consequences of giving up a guaranteed income for life and whether this is really something you should be doing.

Legal and General Announce Support for the Scheme

In a statement issued on 19th March 2015 Legal and General became the first provider, to our knowledge, to endorse the proposals. They stated that they felt it could be good for both pensioners and companies. They were however concerned to ensure that adequate customer protection is built into the proposals and welcome the fact that a considerable consultation process will first need to take place.

From our perspective we are concerned that providers will struggle to make products that are genuinely attractive for customers. There are two significant areas that we have identified that could cause customers to shy away from finally selling their annuity. The first is that they will have to sell at a discount, and the other is taxation.

To explain these very simply, it is expected that when you sell your annuity, the income you would have received will instead be paid to a company who will continue to receive the income until you die. Therefore they will recalculate your life expectancy. This means that if you receive £2,000 per annum for your annuity and you have a life expectancy of 10 years, you could reasonably expect to receive £20,000 for your annuity. However there would be no profit for the company buying your annuity and a risk to them that you could die before the 10 years are up. Therefore as an example they could offer you say £17,000 for your annuity. That’s fine you may say, but you may have forgotten about taxation.

As you are aware any income you receive from your annuity is liable to income tax. It is likely that you would still have to pay tax on the lump sum. If you were liable for 20% tax on the whole amount that would reduce the £17,000 lump sum to £13,600. If these assumptions were to be correct, you would be giving up £1,600 a year (after tax) for life in exchange for just over 8 years income.

For the reasons above we would like to see the inclusion of the ability to convert your annuity directly into a drawdown fund rather than a cash lump sum.

Don’t lose your right to compensation

One of the stories beginning to feature more in the press regards annuity customers who would have qualified for enhanced annuity rates, but were nevertheless sold standard rate annuities. In the main, these were sales where the customer at retirement didn’t shop around for the best deal (perhaps they were unaware that they could or their provider didn’t make it clear to them). As such they have ended up with the standard annuity rate quoted in the provider’s retirement pack. In some cases the provider was aware of circumstances and medical conditions that could have earned the customer a higher rate.

It could very well be the case that some annuity providers would be happy to say goodbye to some annuity deals where they feel that future compensation would be a risk. While selling your annuity shouldn’t be a barrier to you making such a complaint, if you have cashed in your annuity it could be argued that you were never interested in a long term income in any case.

If you bought your annuity direct from your existing pension provider you may not have got the best deal. We would suggest you check this out first.

As always this email ends with the very important warnings that selling your annuity may be a very poor and financially damaging decision. Please think very carefully before making an irreversible decision.    

 
Important : Your annuity is designed to provide you with a guaranteed income in retirement. This income will continue to be paid for as long as you live. If you sell your annuity you may not have a sufficient level of income to sustain your lifestyle in retirement. It is likely to be the case that the value of the lump sum you receive will be less than you would have received if you had kept your annuity and died in line with your life expectancy at the time you took out your annuity.
 
 
 
Freedom for people with an annuity
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"Well we’ve already given freedom to people saving for a pension. What we’re going to do today is give freedom to the 5 million pensioners who have an annuity. Now for many of them, that will be the right thing to have. But some will want access to that money, so we’re going to change the law. It’s all part of trusting people who’ve worked hard and saved hard all their lives. It’s all part of having a long-term economic plan where we build our country on savings and investment."
George Osborne - 15th March 2015

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”Considerate, conscientious and confidence-inspiring”

From the start Bob and his team let us know that they understood our nervousness about deciding what to do with our pension fund.  We were never put under any pressure to make a decision; on the contrary,  the team were considerate of our need to take our time to think about what we were doing and be satisfied that we were doing the right thing.  It didn’t seem to matter how many questions we threw at them – they always replied promptly and in as much detail as necessary and they were always ready to help further.

Indeed, we were very impressed by just how conscientious they are.   We received emails and paperwork accompanying every step we took and it would be no exaggeration to say that no efforts were spared to make sure that everything was documented down to the last detail.

Bob and his team inspire confidence and do so in a way that is friendly and familiar.  We’re confident that we’ve found someone who understands what’s going on in the pension industry and is able to help us make our own decisions about how best to invest our fund.   And we’re happy that this person is someone who’s always very approachable  and ready  to do what he can to help his clients. 

 
 
Mr V. S. - Prague
 
 
January 2015
 
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Please Note : Some of the ideas and concepts discussed on this website are not yet law and may not become law. There is still the possibility that some or all of these changes could be altered or cancelled as the changes announced by the Chancellor of the Exchequer have to be passed by Parliament. We cannot be held liable for any action taken by a customer in anticipation of the proposed legislation becoming law.
 
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