View more on these topics

Ill-gotten gains

At age 54, I have accumulated over £290,000 in various pension funds.

My plan is to take early retirement and possibly continue with some

consultancy work. I quite like the thought of taking

tax-free cash now

but will need only a modest level of income in the short term.

I take an active interest in investments and most of mine are planned to

mature in 10 years or so. While my health is not too good (two heart

attacks in the last five years), I think I am too young to buy an annuity.

What should I do?

At 54, you may consider yourself too young to purchase an annuity. Many

people consider them to be poor value for money currently. But don&#39t be too

dismissive as they do provide a guaranteed stream of gross income for life

even if, in many other respects, they are a little inflexible.

As someone who might be described (excuse the industry jargon) as an

“under-average life”, you can benefit from improved annuity rates as a

result of your increased mortality risk. Even leaving that aside, it is

possible to purchase a unit-linked or with-profits annuity where future

income is linked to ongoing investment returns.

Although you wish to consider alternatives to annuity purchase, we can

conveniently use that option as a comparative reference point.

Investment risk: Depending on the selected investments, the capital value

of your pension fund might go down rather than up. The future value of the

fund may not be able to provide you with an appropriate level of income.

Interest or annuity rate risk. As you get older, annuity rates tend to be

higher. But with increased life expectancy and falling long-term gilt

yields (on which annuity rates are based), there is no guarantee that

future rates will be better than they are today.

Mortality drag. Put simply, if you delay buying the annuity, you miss out

on some of the profit inherent in annuity rates as a result of some

annuitants dying sooner than expected. Sounds bizarre but it is not to be


You must also take into account that you will have to pay charges to keep

the pension fund invested.

You can retain complete investment control and, typically, a Sipp is going

to be cheaper than a conventional insurance product, with explicit fees

charged by the provider and IFA rather than commission payable to the IFA

by the provider.

Remember to review the plan on a regular basis, at least yearly, and

adjust the chosen investments over time to reflect the needs of the fundand

your changing attitude towards risk/reward and volatility.

With a conventional annuity, provision can be made for a surviving spouse

to continue to receive an income, with a consequential reduction in the

starting income for you. It may also be possible to guarantee an income for

a minimum number of years.

With more than £21bn in Tessa funds maturing this year, the

Tessa-only Isa market has become

huge. But it is unlikely that investors will get more than 5 per cent on

average from variable-rate Toisas.

A much better alternative for most investors is a very popular product

called Tessa Triple Plus issued by NDF in association with Credit Suisse

First Boston. Many IFAs have quite rightly recommended it to their clients.

NDF and CSFB are now issuing a new tranche on terms which were agreed

before the base rate cut on May 10. It is linked to the FTSE 100 index and

pays up to 20 per cent growth in any one year over a five-year period so

there is a potential for 100 per cent tax-free growth.

Unlike most stockmarket-linked plans, it provides 100 per cent capital

security at all times.

With nearly all forecasters expecting the FTSE 100 to rise by at least 10

per cent from current levels, with some predicting gains of 20 per cent or

more over the next 12 months, this looks to be an extremely sensible

investment at current levels.

Two other points worth noting are that, in addition to the investor&#39s

maturing Tessa capital of £9,000 being invested, another £3,000

can be invested in a mini cash Isa. Also, even if investors have already

transferred their existing Tessa into a Toisa, they can transfer at any

time into Triple Plus.

At present, the highest fixed-rate Isa available is only 6.1 per cent from

Northern Rock Building Society while the highest variable-rate Tessa is 6.5

per cent from Portman Building Society. I expect both rates to fall shortly.

With no risk to capital and a far higher potential return than

conventional Toisas, Tessa Triple Plus is a must for all realistic

investors and even for those who are risk-averse. Three per cent commission

is paid to IFAs.


Government says no to Lloyds bid for Abbey

The Government has decided to stop Lloyds attempted hostile takeover of Abbey National because of competition concerns.The £19bn bid was blocked by Trade and Industry Secretary Patricia Hewitt as anticipated by the industry because she has accepted advice from the Competition Commission the deal could be expected to operate against the public interest.If the deal […]

GISC delays decision on members

The General Insurance Standards Council has delayed its decision onforcing its members to deal only with other GISC members until October 15,a month later than originally expected. An appeal before the CompetitionCommission Appeal Tribunal is pending and the council wants to give membersadequate time to consider its decision. The anticipated final date ofDecember 31 for […]


Will other lenders follow Portman Building Society&#39s lead and pull out ofthe remortgage market? “No, I don&#39t think so. Where else will they get the business from?” Jim Russell, Russell & Co “Not immediately. They must be concerned that service levels are slipping.” Mark Harris, Savills Financial Planning “No, there is too much money out […]

100% and self-cert loans by non-conformist C&G

Cheltenham & Gloucester is launching into the non-conforming lendingmarket for the first time. The UK&#39s third-biggest lender is set to offer self-certification mortgagesthrough IFAs and its branch network for a three-month pilot trial, afterwhich it has pledged to “take a closer look at what customers want”. At present, the only mainstream lenders to have delved […]

Mothers missing out on millions

By Steve Webb, director of policy and external communications The ninth Royal London Policy Paper discusses how thousands of mothers are missing out on state pension rights when they don’t have to Earlier this month we published the ninth Royal London Policy Paper, entitled ‘Mothers Missing out on Millions’. It focuses on the thousands of mothers […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm