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Guaranteed drawdown ‘like mixing oil and water’

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For better or worse, or to save IHT!

Karen Playfair, Senior Marketing Consultant I recently got married, and my husband and I realised that as a result we should review our wills – not one of our most romantic moments, but possibly one of our more sensible ones! And even though we both previously had wills, it turns out that when you get […]

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Not any old oil and not water. Think of it as extra virgin olive oil and fine balsamic vinegar. Not really mixing but blending beautifully when the proportions are right.

  2. Any guarantee has to be paid for one way or another. The more costs associated with drawdown, the less likely it is to be a successful long-term strategy. Also, as soon as you introduce the word ‘guarantee’ into a conversation about money, there is usually some element of delusion somewhere along the line. Gilts, for example, are ‘guaranteed’ by HMG, but if you buy above par, where many are now, you’re still looking at a loss if you hold to redemption. It’s amazing how many people we see don’t comprehend that fact and worry how many advisors seem not to either. I absolutely believe in drawdown and will use it myself, but you have to make sure the client is right for it. We probably still write annuities for around 20% of at-retirement clients.

  3. Apart from their heavy charges, the principal turn-off with GDD is that the levels of initial income they offer/allow compare so poorly with a conventional annuity. Even though future increases to these guaranteed income levels ratchet up, the number of years it’s likely to take for them to match and then overtake the income from an annuity is as unknowable as future investment returns. Most people want maximum income from the word go, which GDD simply doesn’t provide and no enhancements are available for impaired lives.

    Liverpool Vic’s With Profits Annuity provided competitive levels of income from day one, enhancements for impaired lives and realistic prospects for the guaranteed minimum level of income to ratchet up year by year. But sadly they withdrew it last year.

    • The drawback with using LV, unfortunately, is that they go back on their word. We had two impaired life annuity cases where they reduced the rate a few months after issuing the policies, saying the GP reports showed the clients weren’t as ill as claimed. One of the clients in question died three months later. No company has ever done that to us before and LV will NEVER get the chance to do it to us again.

      • A salutary tale, Neil, and I understand your bitterness, though the issue in this instance was underwriting rather than the product. LV could as easily have done the same on a straightforward non-profit impaired life annuity.

        • I’m not saying my experience knocks the WP annuity concept in general Julian, though I have serious reservations re’ WP in general and have had for will over 30 years. I recently wrote an essay on the topic for our investors. Some journo somewhere has a note of a meeting I had with him in the mid-1990s while I was at DBS, when I warned against endowment mortgages. I just wish I could remember his name. They ran my comment in one of the trade papers without attributing it to me (it’d have got me fired!) My point is that my experience, and the quite separate but similar experience of a colleague, leads me not to trust LV. Two strikes with me and one with her makes three. They’re out.

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