I’m not an advocate of DC options in the long term but I have a lot of time for Claer Barret and her advice for the wealthy readers of the Financial Times.
There are other things that a Chancellor could do, he could send bond yields shooting up as Kwarteng did 4 years before but this seems unlikely. Fiscal rules will be complied with and bond rates and inflation may be eased. Annuities look a good bet right now as Claer advertises. But if you’ve had bonds in your default DIY pension fund , your fund will have done ok of late as bond yields have risen to the highest rates since 1998. They have only one direction if bond yields and Government borrowing are under control – that’s down!
But isn’t this so hard? If you are reading my blog, you probably understand Claer’s arguments but it’s unlikely you get to think about them, read about them, are able to understand them if you’re the 15m who haven’t got enough pension to get by.
Taking lifestyle decisions sounds pretty innocuous but these are lifetime decisions and most are taken for you with a sophisticated drawdown strategy called flex and fix in mind.
That will end in an annuity eventually (the fix) and will insure against your annuity conversion rate going down when you are having one bought for you. This is called “guided retirement” it’s coming soon but it’s already where the pot you’re in will be going if you take no action.
To take action and lock in the high annuity conversion rate that are on offer is a good deal but you should recognise that the Government has advertised that the coming CDC pensions will convert pots to collective pensions that will be considerably higher – up to 60% higher said the DWP’s advertisement last October.
The best news for those who don’t have advisers or read the FT is not to worry. Things are getting better and you may be lucky enough to be in one of these “bigger collective pension funds” that will deliver better outcome for “future pensioners” assuming you haven’t yet cashed in your pot or bought an annuity.
The usual warning applies, unless you swap your pot for an annuity , you won’t get a guaranteed wage in retirement and if you want that guarantee – now is a good time to swap pot for annuity (so long as you are over 55).
