You don’t always know what you’ve got till it’s gone

So I’m 48, 15 months older and I’d be able to buy an annuity-but they’ve paved paradise and I’ll have to wait till 2016 which sucks.

Paradise  for this child of the seventies is a gilt-edged promise of income for life and “we’ve never had it so good”. Britain has an efficient annuity market with low distribution costs and strong competition arising from compulsory annuitisation from private pensions.

Academic research suggests where annuities are compulsory,insurers are proteced from self selection and can offer better mortality terms. Since the introduction of income drawdown, we have seen the richest (potentially the longest living cohort) defer annuity purchase which has further improved annuity rates by concentrating annuity purchase at normal retirement age on the less well pensioned (and shorter lived).

The rich are perversely selecting against themselves!

Were I 15 months older, I would be taking advantage of these “super-rates” and I suggest that there is an opportunity, especially where small DB schemes see liabilities dominated by a handful of pensioners in payment to buy such  members out (subject to approval from the Regulator).

But here’s the rub. Those beastly bureaucrats in Brussels are insisting that insurers from 2012, increase protection for annuitants to an extent that these super-rates disappear. Insurers suggest that the impact of EU Solvency ii will be to reduce annuity rates by as much as 20%.

They’ll pave paradise and put up a parking lot.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to You don’t always know what you’ve got till it’s gone

  1. Katherine Oxenham says:

    Not sure if I sympathise or not! I’m only a few years younger than you but as a woman I’ve had my State Pension Age mucked about with even more. First it was 60, then 62, now I’ll have to wait until I’m 67 – yet with the changes to qualifying years, I will have made sufficient NI contributions to qualify for the full BSP by the time I’m 48! A lot of people in my generation have the gut feeling that there will be no State provision left by the time we get to whatever age it is by then….

    But back to the topic in hand, a number of the annuity providers say they have already factored Solvency II into their rates, so the impact will be less.

    What concerns me increasingly is the effect this is having on future generations. Children today who aspire to go to university will potentially build up debt of ?£30,000 -odd before they start work. Assuming they can find a decent job, they then have to find some way of earning enough to pay off this debt whilst saving for the deposit for their first house – which I understand is now happening sometime in their thirties. At the same time, they need to save increasingly enormous amounts into a pension of some description to provide sufficient income as more of them are likely to live to 100+.

    Where will the money come from?

    And this is without complicating the situation by wanting children, holidays, cars or just having your heating on all winter!

    Money’s too tight to mention?

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