Annuity Direct

Select :

Did you know?

You can pay us by fee or we can take commission that is costed into the annuity by the provider.

Did you know?

Our quote system links directly to the quotation facility of all leading product providers.

Unsecured Pension

Also known as income drawdown this arrangement has been popular with clients who hold larger funds. The basis is that funds remain invested and income is withdrawn each year. At five yearly intervals the level is set and you can draw between zero and 120% of this level.It is important that anyone considering these arrangements understand the risks associated with them which are as follows:

1. The investment fund may not perform. If this happens then income will fall.

2. if you buy an annuity at a later date then you may not be able to buy an annuity at the same rate as when you started the unsecured pension arrangement.

3. You will not benefit from the cross subsidy inherent in an annuity whereby the funds of those who die early are redistributed to surviving annuitants. This can be calculated as arnging from .5% at age 60 to circa 2% at age 75. This is known as mortality drag.

The important point to remember is that these risks interact. For example the investment fund may rise but a fall in annuity rates may still mean a fall in income when you purchase an annuity.

To help you to quantify these risks we would calculate a critical yield that would define the annual return required to match the annuity you could buy today. We do this using the annuity rate that we can obtain for you based on your medical history or guaranteed rate availability as this produces a much more accurate yield than the general quotes produced by insurers which in general will understate the yield you will need. We can state with some certainty that for unsecured pension to be viable you must be prepared to accept the risk of an equity based investment portfolio. We are experts in the technical rules associated with these arrangements and the regular serviceing which they require. You will, however need to appoint a fund manager who will advise on the portfolio that will meet the critical yield. We would suggest that they should be a member of The Association of Private Client Investment Managers - APCIMS - http://www.apcims.co.uk.

One feature of unsecured pension that people find attractive is the return of fund on death, subject to a 35% tax charge.