The problem: The Greg is a senior pensions specialist at financial advisery business Smith Jones and he has been asked to present a seminar about financial choices to a group of employees of a client company. The audience is largely composed of people approaching retirement and specific subject matter of the seminar is annuity purchase.
The solution: Greg has decided that he wants to get across a number of key points to his audience.
- The decisions that people with DC pensions make at retirement will have a major impact on their living standards for the rest of their lives. The difference in annuity rates between the top and the bottom could be as much as a third or even more.
- It is really important for clients to think about their needs, aims and of course their circumstances and take competent advice. Left to their own devices, a great many people buy the biggest annuity available from their existing pension provider. What’s more, they often ignore the need to make some pension provision for a surviving spouse or partner. They forget about inflation and they do not consider the other possibilities.
- Some people do not take the PCLS and use the whole fund to buy an annuity; this is virtually always a mistake. It is worth maximising the tax free cash.
- Income can be greatly boosted by identifying the most competitive insurance companies.
- Arranging the annuity takes more skill and effort than clients might suspect. Nowadays an increasing number of advisers carry out medical underwriting for all clients who buy annuities. A very high proportion of clients have medical conditions that enhance the returns they can get from annuities.
- It is not compulsory to buy an annuity; there is the option of drawdown. But both choices have their advantages and drawbacks. If drawdown is a practical possibility because there is a large enough fund to make it feasible, most people need expert financial planning advice to evaluate the options.
- The client’s risk profile is a crucial aspect of ‘at retirement’ planning. Whether or not the client is prepared to consider drawdown rather than annuity purchase is substantially related to their attitude to taking on investment risk and their capacity to cope with fluctuations in their income or even the possibility that their fund might run out altogether.
- If the client does decide to buy an annuity, it is crucial they understand the implications: the security, tax position, protection against inflation if any, the position on their death or the death of their spouse of partner and the general lack of flexibility.
These then are to be Greg’s main themes. The seminar and discussions around these topics are intended to get the audience thinking about how these new and complicated issues apply to each of them and their individual circumstances.
Finding a way through
Times are busy. The automatic enrolment dates of many SME clients are fast approaching and there are not enough hours in the day. So Greg needs a fast and easy way to organise the outline of his talk, write the content and produce the slides. Fortunately he can draw on Taxbriefs Advantage to help him achieve this. It does not have ready made slides but it does contain pretty well everything he needs to put together a really impressive presentation that the employees should understand and relate to, while demonstrating his pensions knowledge and general communications skills.
For each topic, it provides the main facts and issues to consider, drawing on both the pensions/retirement planning sections and the section on the process of financial planning.
Greg was focused on annuities but he felt that he needed to cover off drawdown and its pros and cons, if only relatively briefly. One of the strengths of Taxbriefs Advantage is that it provides clear and comprehensible guides to reasons why clients should and should not consider both annuities and drawdown. Issues like absence of investment risk, low administration costs, and simplicity favour annuities. Drawdown scores high on flexibility, the scope for protection against inflation and generally higher death benefits.
Some clients who decide to follow the drawdown route still have to buy an annuity. These are the clients who decide that capped drawdown is too restrictive and requires too much control and oversight to make sure that they don’t inadvertently break any of the HMRC rules on maximum withdrawals. Flexible drawdown requires a minimum income of £20,000 a year and virtually the only way to achieve that is to buy a pension annuity.
Greg’s presentation went well and took him much less time to prepare than he had expected, with good feedback from the client and participants.
Danby Bloch is editorial director of Taxbriefs Financial Publishing
Taxbriefs Advantage is a new online content resource aimed at giving financial advisers, planners and paraplanners a clear business advantage. Advantage provides you with unbiased, independent answers to your technical queries. Marrying Taxbriefs’ quality content with focused functionality, Advantage allows you to build up your own library of regularly updated content to export and share – visit www.taxbriefsadvantage.co.uk and find out more.