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Annuities Deserve A Favoured Treatment

Way back in October 1995, this author had a rather painful experience, meeting a retired senior officer from the automobile industry, who had to beg for some money to feed his old wife and himself. Companies did not provide for pension then.

I asked him why he had not, while in service, purchased an annuity policy from an insurer. He replied that life insurance products were sold only through insurance agents and no agent had ever suggested purchasing an annuity policy.

The Best Annuity | How To Beat The Annuity Rate Crisis

Annuity rates have fallen to a record low and there is little hope that they will recover. We offer some sensible alternatives

For thousands approaching retirement there is no point in buying a conventional annuity, according to leading pension experts, because rates have plummeted to such low levels.

Most people still use their pension fund to buy such an annuity at retirement, which guarantees a fixed monthly income for life.

Annuity rates have been in decline for 20 years, thanks largely to increased longevity. But this decline has been accelerated by the current financial crisis, which has caused interest rates and gilt yields to fall.

Billy Burrows, a director of the Better Retirement Group, said: “With a 100,000 pension fund now securing less than 6,000 a year [for a 65-year-old man] we’ve reached a tipping point where there seems to be little point in using your pension fund to invest solely in a conventional guaranteed annuity.”

At the start of the 1990s, the same pension fund would have guaranteed an income of 15,640 a year for life. Twenty (LSE: TWE.L – news ) years on, a 65-year old man retiring will secure just 5,800 a year. If this pension fund is also used to provide a spouse’s pension then the income falls to just 5,300 a year. And if you want your pension income to rise in line with inflation each year, then your initial payment will be 40pc lower.

Those retiring now should face the fact that “they may have missed the boat” as far as guaranteed annuities are concerned, Mr Burrows said. “If you had 100,000 in savings, no one would advise you to lock it all into a 15-year fixed-rate account with interest rates where they are. So perhaps people shouldn’t do this with their pension either.”

The question for those approaching retirement is what to do instead. Many might be tempted simply to delay their retirement and hold off buying an annuity, at least until rates recover. But most experts advise against such action.

Steve Lowe, director of external affairs at Just Retirement (Xetra: A0LFE0 – news ) , said: “Those delaying annuity purchase in the hope that rates will improve might just as well sprinkle fairy dust on their pension and hope this boosts their retirement income.

Low annuity rates look like being here to stay. New European rules, which will force annuity providers to offer unisex rates and hold more assets in gilts, are likely to depress rates further next year. An increase in interest rates could provide a temporary lift, but no-one is predicting a rise anytime soon. And even when they do rise, gains could be wiped out by further increases to life expectancy.

So what are the other options? The obvious one is an income-drawdown plan, where people keep their pension fund fully invested and draw an income from it. It’s not surprising many risk-averse pensioners feel trapped between a rock and a hard place. Returns from conventional annuities might have collapsed but many don’t want their pension exposed to a volatile stock market, particularly as the amount you can take as income has significantly reduced.

The first option people should explore is an enhanced annuity. Anyone with a medical condition, however minor, should talk to their pension provider to see if this qualifies them for an enhanced annuity rate. Bob Bullivant of Annuity Direct said: “Underwriting has become much more sophisticated. Even if you are an ex-smoker you may qualify for a better annuity rate if you have given up in recent years.” It is a risk-free way of boosting returns, yet many pensioners are missing out. Research by Just Retirement showed two-thirds of those using an adviser to source the best annuity deal qualified for some kind of health-related enhancement. Shockingly just 1pc of those who buy an annuity from their existing pension provider get this uplift.

Mr Burrows said there were other options that are often overlooked. These include, investment-backed annuities and fixed-term annuities. Both involve a degree of risk (see below) so anyone considering such options should seek advice.

“For those with a reasonable pension fund, the best advice is to mix and match,” he said. “Economic and personal circumstances can change, so this approach gives people more flexibility. It’s what you would do with 100,000 of savings, so why not a pension?”

No single financial product allows you to hedge against longevity and inflation and future investment returns. But you can achieve this by splitting your money between products. Some locked into a safe, but low-paying conventional annuity is still the best hedge against living longer than expected. Then a portion put into an investment-backed product gives opportunity for growth, protecting at least some of your income against inflation. Finally, the remainder can be used to buy a fixed-term annuity, which means you can lock into a higher income at a later date should your health deteriorate.

=Investment-backed annuities =

These are riskier than conventional annuities but are not seen as high risk as income-drawdown plans, as a minimum income stream is guaranteed. Most pay a lower starting income than a conventional annuity, but one that should grow over time.

One of the most popular is from Prudential (LSE: PRU.L – news ) , where the money is invested in its with-profits fund, which aims to “smooth” returns. Despite recent stock market volatility, this has delivered a rising income over the past five years. Other products, such as the MGM annuity, invests in a range of managed funds, so annuitants can switch between higher-risk equity funds and lower-risk cash or bond funds as economic conditions change.

Advantage

Opportunity for income to rise. Minimum income stream guaranteed. Some will also pay a higher rate to those in poor health.

Disadvantage

If investment returns poor, income will fall.

=Fixed-term annuities =

Unlike a conventional annuity these run for five or 10 years. At the end of this term you are free to buy another annuity with the remainder of your fund. If annuity rates have fallen you will be locking into a lower rate. Of course, the reverse could happen, although as stated above few experts predict a significant rise. The main beneficiaries will be those whose health has deteriorated in the interim, which means they now qualify for an enhanced rate.

Advantage

Allows flexibility and to “test drive” an annuity at the start of retirement. A far greater proportion of pensioners suffer ill health from 70 onwards, although many need to buy an annuity before this. This offers a short-term solution, so people can reassess options at a later date.

Disadvantage

If annuity rates fall you can find yourself chasing rates downwards, locking in at a lower rate at each 10-year interval, with a smaller fund.

Funding An Annuity: What Are The Options?

At the simplest level, annuities are funded when you makepayments (premiums) now in order to receive payments (return ofpremiums and any earnings) later. However, annuity payments madeprior to age 59? may be subject to a 10% federal tax penalty unlessan exception applies.

Some annuities are funded with one payment (single premiumannuities), and some are funded over time (flexible premiumannuities).

There are also some annuities that are not funded with cash atall.

These are charitable gift annuities, and they’re often fundedwith appreciated assets to gain special tax benefits.

Single premium annuity

As you might expect, with a single premium annuity, you (thepurchaser) pay one premium. If it is a deferred annuity, payoutsbegin at a later date, perhaps years in the future.

A single premium immediate annuity (immediate annuities are onlyfunded with a single payment) usually requires a distributionstarting date that is within one year of the annuitycontribution.

The single premium annuity is also used in othersituations.

When a defined benefit pension plan is terminated, the accruedbenefits under the plan are determined for each plan participant,and a single premium annuity may be purchased for each planparticipant (with benefits usually starting at age 65).

Another common use is in the structured settlement of lawsuits.In these cases, the parties agree to pay a sum of money not as alump sum, but as a series of payments (often for the life of aninjured party).

A monthly amount to be paid is agreed to by the parties, and anannuity is purchased that provides that amount.

Periodic annuity funding

Although deferred annuities can be funded with a single premium,mostly they are funded over a period of time. Periodic payments canbe made until the annuity payout period begins.

Annuities that utilize periodic funding can be divided into twocategories:

Level premium funding: Premium payments are made on a regular,ongoing basis. Payments can be made either monthly or annually,depending on the terms of the contract.

Flexible premium funding: Premium payments are flexible andcan occasionally be skipped. The insurer may impose an annualminimum and maximum on the amount of premiums that can be paidin.

Flowing Fund Of Hedge Funds

Any investment executive would really actively succeed investments by selecting bad securities. But a account of funds executive would usually try to choose most appropriate conducting funds to make an investment. So if the executive is really skillful, it could supply even a larger fortitude and take on a few of the chance relating to the decisions of the manager. Fund of funds are frequently used in investment in sidestep funds and in isolation equity funds as they have a really minimum investment levels when compared to normal investment funds. The insufficient of accessibility favors a account of funds with a veteran executive and erect in expansion of risk. Pension funds moreover deposit in find of sidestep funds other than normal batch and union holdings.

The account of sidestep funds deposit in portfolio of not similar sidestep funds as it provides a extended bearing to sidestep account attention and moreover diversifies the chance related with the singular investment fund. After selecting the executive a portfolio is assembled formed on the selections. The account is solely accountable for employing and banishment the managers in the fund. The account normally assign a price for their service in add-on to sidestep account administration and opening fees. While account of funds can supply really utilitarian services for many sidestep account investors, but still they have been criticised for incrementing the cost they impose. One of the defining characteristics of sidestep funds are the opening fees that gives a share of certain earnings to the managers. It is distributed as a commission of the fund’s profit. Investors are usually peaceful to pay managers more opening fees as the investors have themselves done money. So this price acts remunerative for managers who perform well.

Some managers would even assign investors with a withdrawal or a emancipation price if the investors back out the allowance from the account before a certain time of time has gone by given the allowance was invested is to role to urge on long tenure investments in the funds.

Method Of Stock Investment

The batch marketplace is deliberate a of the most appropriate choices for both long-term and short-term investors. The appearance of well-noted companies and their successive expansion irritate investors to deposit in batch for long durations of time. But considerable figures of people similar to to deposit for short-term. They think investing money for partial time can give great benefits to them. In the batch market, the short-term investments are widely separated in to 3 parts.

1. Position Trading
In this trade you can grip your bonds from 5 days to 6 months that is deliberate great for examination the essential changes in the worth of the stocks. This trade involves a small chance and is used by figures of people who are not able to to watch out the every day updates of the batch market.

2. Swing Trading
This trade is really important amid persons who wish to put their money at great risk. It allows traders to grip their bonds for scarcely about a to 5 days. A pitch merchant requires to request strategies that able him to select great stocks. It often generates a larger payback.

3. Day Traders

Traders who experience in day trade are well known as active traders or day traders. This sort of trade often requires sufficient concern and a brief foreword of the drop and the way up of the batch market. A full-time veteran of the batch marketplace might able to experience in day trading. A day merchant has to purchase and sell his bonds reduction than a day, so he should be active to know when to obtain in and out of the trade to be able to earn sufficient profit.

For any variety of batch investment it is vital that a merchant should be vigilant. He is able to select a conjectural attorney and moreover able to collect protected stocks. Many experts think that a of the safest ways to come in in the batch marketplace is by investing in considerable companies, perfectly the companies are arguable and are segment of the marketplace index.

Closure Of Wealth Manager Ipac Hits S'pore, HK Clients

By Genevieve Cua

The closure of the riches executive ipac Singapore and Hong Kong is approaching to repercussions customers with amalgamated portfolio properties of rounded off US$500 million.

In add-on to the startle of closure, customers are likely to have to set free a significant amount – about US$300 million – from ipac Dublin-domiciled SIS portfolios, that ipac aims to close. SIS is ipac’s exclusive multi-manager array of funds.

‘I am really unwavering that in the stream mercantile and violent marketplace environment, customers will be disturbed about their investments when they listen to the word ‘closure’. We’re proactively communicating to give them soothe around (the process).’

Seven SIS supports have an estimated item worth of rounded off US$300 million. The closure of the supports is approaching to take around 4 to 5 months.

Uncertainty had swirled around ipac for more than a year, given AXA began moves to remodel its Asia-Pacific insurance business, of that ipac was a part. AXA sole the Australian and New Zealand business to AMP final year, and defended the Asia-Pacific business.

While it had great certainty in its core insurance expansion in the region, the financial instructive business was mentioned to be loss creation and AXA’s undertaking to that portion was unclear. ipac Australia has been eliminated to AMP.

AXA voiced the closure of the ipac operations in Hong Kong and Singapore on Monday. It mentioned ‘the divestiture of these fee-based financial planning businesses would be conform to with its aspiration to concentration on stability the burly expansion of its insurance businesses in Asia’.

ipac Taiwan will go on to run as it expects synergies with a potential life insurance looseness there, mentioned Mr Harvey. ‘For Hong Kong and Singapore, you didn’t see the same turn of synergy…’

ipac’s closure is a blow to the local FA space, where expansion is believed to have stagnated among a more tough working environment. Not usually are firms grappling with neatly flighty and downtrending markets, but they moreover have to accede with new manners on the sale of investment products.

For ipac in particular, increase have been fugitive given it began in 2003. In the fiscal year 2010, it reported an after-tax loss of $4.5 million. This was a slight alleviation from 2008 and 2009 where losses came to $5.9 million and $5.6 million respectively.

Its accumulative loss as at 2010 was a towering $33.9 million.

ipac had started operations here with sufficient fanfare. It hoped to make a success of an advice-centric model, where advisers are paid salaries rsther than than by product commissions. Clients are charged a portfolio instructive fee. This model is ostensible to improved enter into confidant interests with customers’.

But its high overheads – salaries in addition to a important Raffles Place office – done the business unsustainable.

The definite is right away looking to redeploy its staff inside of AXA, or to find new jobs for them elsewhere. The complete staff in Singapore and Hong Kong is 80, inclusive encouragement staff. ‘What you target to do is to work with advisers to find them new homes, and work with customers and advisers together to find new relationships.