This is the big chart for pensions , telling everyone from pension scheme actuaries to life actuaries managing annuity rates what to say with numbers. I say that because the other way of looking at this chart is as a confidence-meter and what it’s saying is that right now there is very little confidence in the economy. We have to go back to 1998 to find a time when Government has to pay so much to borrow and when pension schemes and annuities got such help with liability management and the setting of attractive annuity rates.
I will not go into the global perspective but there is an extremely good article to read on a “freebie” from the FT (be quick then drop me a line on henry@agewage.com if you missed it).
Of course it is not good news for Britain, there is even talk from Kenneth Clark (yes the ex-chancellor) in the FT about the Labour Government having to call in the IMF so bad is the debt position. It is a mark of some comfort that we do not take that seriously but I will keep a memory that I wrote this paragraph, in case it happens!
There is a lot of good news for annuities, especially the retail kind, so long as insurance companies have the money. Some insurance companies seem to have run out of money to do Bulk Purchase Annuities. Just and Pic have had to sell out to American private equity houses while one household UK name is going to lose its annuity CEO because it is out of capital to backstop BPA’s with the club fund. They’re not broke – they’ve just run out of cash to take on more. Look out for more of your household name companies (in the pension sense) being run out of Bermuda by Wall Street financiers.
But for the “pension pot” holder who has put the pension pot by to save on and pay off the inheritance tax bill. Yesterday , LCP had an inheritance tax webinar with a record attendance getting on for 1000 clicking in. Inheritance tax will, around the time that pensions are being paid “default” , be chargeable for those who have opted out of getting a pension (drawdown, annuity or transfer-in DB) from their pot.
Judging by the audience, we have pension administrators wanting to know how this will impact their workflows and everyone who’ve done out of work, wanting to know how it will impact their wealth management.
The annuity rate will be at an all time high (at least for those of us retiring this century. The attraction of swapping the pot for an annuity is likely to put the use of excellent brokers such as Retirement Line up ever further and it will be tax managers this time who may be exercising the wealthy.
I hope that the new found surpluses of DB plans, created by this spike in gilt yields will give DB trustees and their advisers and executives to pay more pension to those who have fallen the real rate of income (calculated against inflation) that they’ve had over the past few years
Since 2022 , everyone but the pensioners with full inflation proofing (the dark blue bar) have been hammered by inflation, the level pension/annuity payment (you may have chosen that) is down 33% since 2019 , for not paying inflation increases.
There is a sting in the tail for pensions and annuities (as far as members are concerned) and that is inflation. We should be thinking of this before buying an annuity and we should be worried if our pension scheme is moving towards buying out through an annuity too.
The only way we can give ourselves long term protection against inflation is to stay invested and that is why what happens to our DB and DC pension market is important.
Addendum – The inheritance tax details from LCP
As mentioned above, yesterday was a day when LCP explained the impact of the changes to inheritance tax treatment of pension pots.
