MILLHAVEN AND PENSION DRAWDOWN
As Millhaven is an appointed representative of Sesame Ltd, the largest independent distributor of financial and other insurance products in the UK, when it come to a very specialised subject like income drawdown, from your self invested personal pension scheme, the you will know that we will be offering the very best service available in this technical and diverse subject.
The Financial Services Authority regard income drawdown as a complex product, and strongly recommend that pension members seek professional advice about it. It is also a lengthy and labour intensive process to transfer existing plans to a suitable self employed personal pension, which is the most suitable vechicle for income drawdown.
Due to the size of the Sesame operation, Millhaven Independent Advice acts in association with Intelligent Pensions, a Sesame recommended specialist provider, for providing financial advice on the subject of drawdown.
This will provide you with the following:-
-
Enable you to take control of your retirement income. Curently annuity rates are rather low, and many people with substantial pension pots saved over many years, may not be too happy with tying up their money in a rather inflexible way such as an annuity, perhaps looking at the question of drawdown, and maybee taking an annuity when they are older.
-
This may be of particular use if you wish to have a flexible income throughout retirement, or should we say to the age when most people would be advised to purchase an annuity, often with an enhancement for current health conditions. According to the General Lifestyle Survey of 2008 58% of men, and 53% of women have a long standing illness between the ages of 65-74, so it may pay to delay taking an annuity. Since 6th April 2011 there is now no compulsion to take an annuity at the age of 75, as existed up to that date, so you could in effect not ever purchase an annuity if you wished.
-
The annuity rate for a man of 65 with a conventional single life annuity, level in payment, guaranteed for 5 years was approximately 15.37% in December 1990, and in October 2010 was 6.27%. Not so good now then! But you may ask yourself the question, will long term interest rates possibly rise over the years, providing a better annuity rate at a later date? Not possible to guarantee that one, but will be part of your overall thinking.
- Have your own personal retirement analyst, and full face to face meetings, together with Millhaven, (not done over the phone), with retirement options, and initial benefit analysis. Then draft recommendations issued for consideration. A second meeting with further benefit analysis, what if testing, and due dilligence. Then the final report and client agreement (only if you wish to proceed), and the implementation of the investment strategy.
- See a computerised model of your retirement, factoring in all your other income sources, so building a complete financial landscape. In effect full cash flow planning provided as part of the service. You can see what happens if you change your income requirements etc, and how that affects the overall situation.
- Annual reviews from your own retirement analyst, together with Millhaven. This includes updating the fact find, updating the retirement model, checking client priorities, re-evaluation of the advice given, creating a new investment strategy, and the issuing of a review report with rebalancing advice.
- Your investment portfolio designed for you by the investment department, checked by the investment director, and balanced annually, for clients who are not yet in drawdown, (but saving within the SIPP), and every quarter for those who are drawing an income from their fund. Full risk management is applied, not by a computer, or by mathmatical modelling, but by human intervention from the investment department, who will visit the fund managers chosen, and devise an investment strategy for each client individually. Income from your fund is taken from funds rising in value, rather than dropping, so giving a chance for falling funds to rise again within the investment cycle.
- Adjusting your financial plan for changes in your circumstances, including unexpected outlays, both before, and after retirement.
Income secured for life (when you decide to take annuity).
How does it all work?
First just get into contact with Millhaven, and they will come to see you to check that drawdown is really a possibility for you. This will include your investment objectives, attitude to investment risk, need for tax free cash, your state of health, possible income requirements, other assets you may have, and your overall financial circumstances. There would be no charge for this visit. This visit is to see if your retirement strategy is suitable for income drawdow, or should you stay with the conventional annuity route? You should not have a cautious attitude to risk, (as a conventional annuity may be better for you), and have a fund of £100,000 or over.
If you decide you would like to look into the matter further, then another appointment would be made at your convenience, to discuss the matter with our preferred specialist provider, with Millhaven present, to provide any background information already gleaned. You would be introduced to our specialist company, and for compliance purposes, complete a client agreement and authority mandates, (to be able to ask questions with regard to your existing plans etc). The FSA roles and obligations document would be completed. A fact find would be completed, and all retirement options open to you would be explained in full. Your initial retirement needs analysis and financial modelling would be completed.
The second stage is that detailed information will be obtained with regard to your existing pension arrangements. Such plans will be analysed to identify any material disadvantage for transfer to a self invested personal pension scheme. A report is then issued for each plan with a recommendation. State pension forecasts are obtained where relevant.
The third stage is the recommendation stage, and a preliminary report is sent to you with a detailed feasability analysis of your objectives and investment strategy. Then a full face to face meeting with the specialist provider, Millhaven and yourself, to review the client report, and to analyse "what if" senarios. Adjustments are then made to your objectives. A final report is issued to you detailing comprehensive analysis and recommendations, including bespoke investment strategy.
If acceptable to you (no obligation at all), then application forms completed, and transfer forms to the Self employed personal penson plan which you will be using to enter drawdown. The SIPP bank account is then opened and transfers received. Your investment instructions are then taken.
Ongoing pre and post retirement involves your investments monitored quarterley, with regular portfolio rebalancing, annual face to face reviews with the specialist provider, and Millhaven present to identify changes to your circumstances. Analysis of progress to date is made against your objectives, and the continued relevance of your strategy and ongoing what if senarious taken into consideration. As pension legislation is constantly changing this will be taken into consideration at reviews, as will your current health and the possibility of taking an annuity if advantageous to you.
Our specialist provider will use "INTLEPEN" which is a retirement modelling system, which will analyse your objectives, investment growth, inflation, and your other available resources to produce a discounted cash flow for your retirement. This will enable you to visualise your options from a variety of perspectives by trying different "what if" scenarios. This includes target income against forecast income, what if you did some part time work?, what if you gifted your investments to a trust at age 75 to mitigate inheritance tax? and what happens if the stock market fallys say 30%.
A charge would only be made if and when you decide to actually go ahead with such a scheme, so if in effect you decide not to do anything, you will not have paid out any money! No pressure and no cost!
Your retirement analyst is qualified to the very highest standards and is qualified to the International Standard Organisation requirements, having obtained the ISO 22222 qualification. Not many advisers in the UK yet have this accreditaion.
Our specialist provider has over 1,300 clients in drawdown, have completed over 8,000 individual pension transfers, and has over £300 million pounds under investment, so due to the size, is able to obtain institutional investment rates for you the client, rather than retail rates, which reduces fund charges by a half. This keeps costs to you as low as possible.
The chairman of the company was a former deputy managing director of Scottish Amicable the insurance company, and who is an actuary.
One of the non executive directors was previously the marketing director for the Royal Bank of Scotland, and the business development director was the pensions manager for Friends Provident in Scotland.
Your technical director (who will overlook your case) was previously a senior examiner in pensions at the Chartered Insurance Institite.
What is pension drawdown?
This is know as Income Withdrawal
It is a facility, originally introduced in 1995, that allows individuals aged between 55, and with now, no upper age limit, to defer the purchase of their pension annuity from an insurance company. You can draw an income from the fund, and the residual fund remains invested. You could go on like this for the rest of your life if you wished.
What are the advantages?
The original purpose of income withdrawal was to help pension members avoid being locked into low annuity rates that may happen to apply at the time of retirement. Not your fault, but now much use to you after a lifetime of saving in the pension. Annuity purchase is therefore a bit of a gamble.
An example of the above is that a man aged 65, purchasing a single life annuity, guaranteed for 5 years, on level payments, would expect in October 2010 to receive an annuity rate of 6.27%. However in December 1990, the rate was 15.37%, so less than half the rate, half the income, guaranteed for life!!
This option enables an investor to retain control over their pension investments longer, allowing continued investments, into equities, bonds, and property, during the income withdrawal phase.
It can offer much higher death benefits an a convention annuity.
It puts off the diffucult decisions of providing a dependents pension, and selecting an increasing, or level pension, or a guarantee on the pension, till later.
The provision of a dependents pension reduces the members pension from the start, even though the member is still living. If the member is stil living 15 years from starting the annuity, then this is a guaranteed loss to the member over all that period. If the member then dies, and leaves say a 100% dependents pension, then this is based on the age of the member when they first took out the annuity. On the other hand, in a drawdown situation you are only withdrawing money from your own fund, so on death the dependent can purchase an annuity at the age they are THEN, not say 15 years ago, which can be very much higher than the conventionalo dependents annuity.
You have to bear in mind that the provison of annuities to an insurance company is classed as a risk business to them and their shareholders. You will find that they will offset this risk onto the members, so making the fund more secure. Most insurance companies that offer pensions, and therefore have to offer an annuity at maturity, will not be very interested in paying the annuity as is a risk, so may well offer a poor annuity rate, again to offset the risk, and possibly no smoker rate, no enhanced rate, and no impaired life rate, so again reducing the risk. By using the open market option you will be getting a rate from the whole of market, but in reality there are only around 6 insurance companies that for healthy people will be prepared to quote anyway!
It allows you to take your tax free cash (up to 25%), without having to take any income withdrawal, so can be very useful for people wanting cash now, but not any income. Tax free cash can also be taken as part of income, so reducing your tax liability on an annual basis. This is where income drawdown mixes with phased encashment of your pension segments.
If a client is young now, but need cash, or cash and income, or just income, they may be stuck with a very low annuity rate, based on poor rates now, and even lower due to their ages. They will get those rates for the whole of their lives if they take out a conventional annuity. Not so if they just use income withdrawal.
Some clients like the idea of a flexible income, ie not the same each year, due to changes in circumstances, working part time, and so on, so the income in withdrawal can change as you wish. Not so with a conventional annuity.
Then maximum income that can be withdrawn under capped drawdown is 100% of the pension that could have been purchased calculated using government actuary rates. There is NO minumum pension that needs to be taken. You do not have to purchase an annuity at any age, (from 6th April 2011), but on each annual review you will be tested against an annuity income, so the time will come when it will be best for you to annuitise, but you dont have to if you have other reasons no to. Also remember you do not have to take your tax free cash by the age of 75 as you did before, so can now take anytime, after the age of 55.
What are the risks?
If the investment performance on the remaining pension fund left invested is say poor, then in future the level of sustainable income may reduce. The amount withdrawn is reviewed annually.
There is in effect no guarantee that the pension utimately purchased, (from say an annuity), will be higher than the amount that could have been purchased from outset. You therefore have to be able to accept a certain level of risk, and you should not be considered cautious in your investment stance.
The charges for administering drawdown will be higher than on a conventional annuity, as is a complex subject, with constantly changing legislation, and you will need an annual review whilst in drawdown.
ANNUITIES AND GENDER DISCRIMINATION 02/03/2011
From Europe, and from the Advocate General. The banning of gender discrimination in annuity rates, (you probably know that women receive a lower annuity rate generally as they live longer).
Only comes into force from the 21st December 2012.
Some annuity providers may equalise annuity payments before that date if they wish.
Annuity rates may rise due to the expected rise in interest rates.
For clients it is always best to use the "open market option" to obtain the best annuity rate. Your current pension company you have been saving with may not be interested in paying a good annuity rate, so you may loose out. Also some annuity providers do not offer enhanced rates for things like smoking, and health issues.
Some Useful pension web sites to help you:-
By clicking on the below links you will leave the regulated site of Millhaven Independent Advice. Neither Millhaven Independent Advice, nor Sesame Ltd, are responsible for the accuracy of the information contained within the linked sites.
Income drawdown- The Pensions Advisory Service
State Pension Forecast