Another leading pension annuity provider, LV=, is cutting its with-profits bonuses. Investors with plans in the LV= with-profits fund will see their policy fund values fall by an average of 1.2%.

LV= says that its fund has performed well in what has been a turbulent investment market, but that they will be cutting annual with-profit bonus rates by as much as 1.4%. Looking back at the last five years, their  with-profits fund has made an overall return of 29%, while average annualised returns in it were 5.23%.

They expect to add around £84.5m in bonuses to the various policies, but confirmed that they will cut annual bonus rates on with-profits products, in line with competitors.

Customers with a With-Profits Pension Annuity Series 3, which was purchased in 2007, will see their annual bonuses cut from 2.8% in 2007 to just 1.4% over last year, the biggest single reduction in LV=’s product range. Are with profits annuities such a good idea?

John Perks, their life & pensions director, stated that the exceptionally volatile investment markets witnessed in 2008 have inevitably impacted on the performance of many investment funds, including short term with-profits returns. He added that the average fall in the value of a maturing 25 year with-profits contract is 1.2% but thanks to the effects of smoothing this is much smaller than the actual fall in the value of the assets backing the policy.

Yet another casualty in the with profits annuity arena. Perhaps when you consider annuity quotes, looking for the best annuity rates, this is one area to avoid.

Having said that, LV= are still competitive for their enhanced annuity product for people with ill health, and for smokers.

A leading european insurer, Swiss Re, has announced it is to close its variable annuities and pensions business in an effort to scale back on its retirement-related activities.

There are 11 London employees, seven New York staff and four contractors that are part of the team, which is headed up by Richard Farr. Swiss Re have confirmed that all 18 permanent posts are at risk of redundancy and said that it was currently undertaking the appropriate consultations with the staff concerned.

Key structuring staff could possibly be transferred to its life & health division and other key people dealing with the likes of pricing, modelling and hedging capabilities might also be retained, within their asset management division.

Swiss Re stated that they are continually adjusting their core activities and ensuring they dedicate their capital to business types with the highest risk-adjusted ongoing earnings potential.

They added that in their view retirement-related activities are facing challenging market conditions, and that they expect this to persist into 2010/11. Therefore, profitability of these businesses will be reduced by certain factors, including the higher costs involved in hedging financial market risk.

It is probably fair to say that they were not a big player in the variable annuity market place, and certainly not in pension annuities generally.

If you have been checking out annuity quotes for the best annuity rates, they wouldn’t have come up.

Sir Fred Goodwin was not sacked, and had he been he would not be eligible for his controversial £693,000 a year pension annuity income he is drawing 10 years early from the Royal Bank of Scotland.

He took early retirement because he was asked to, and this triggered a clause in the company’s employment contract, rather than the “fired for cause” clause. RBS’s new chairman has confirmed that Sir Fred is drawing £693,000 per year rather than the £650,000 figure that has been reported.

The RBS pension scheme allows members who retire early at the request of their employer (RBS) to receive a pension settlement based on accrued service with no discount applied for any early retirement. So, he is much better off because of that clause. Lucky man!

According to a pensions consultant, buying a £693,000 annual pension income at age 50 would cost at least £25m, not the £16m that was previously believed, and 25% of this can be taken as a tax free cash lump sum. This consultant used the Financial Services Authority’s (FSA’s) own pension annuity calculator to work all this out.

Check out some annuity quotes yourself; the figures are truly enormous.

Many outside observers have pointed out that the Treasury and it’s army of lawyers should have been aware of the terms of Sir Fred’s contractual arrangements and so should bear part of the blame for the generous dismissal. Some even suggested the deal was green-lighted by the Treasury and accepted as the cost of getting rid of him.

Apparently, there were four parties to the negotiation of his compromise agreement. One was Sir Fred himself, one was the former chairman Sir Tom McKillop, one was a senior independent director, Bob Scott, and the other was the Government. Now the Treasury are saying that they only discovered last week that the clause in the contract may been discretionary.

Many politicians are now demanding that Sir Fred hands back much of the pension entitlement. Alistair Darling told the BBC that it was he who arranged for Lord Myners to speak to Sir Fred and quite simply ask him whether in the circumstances that the bank is now in whether he (Sir Fred) didn’t  think it was right that he should forgo this generous settlement? Sir Fred hasn’t responded.

An interesting and unique problem that needs resolving. If you have issues that need sorting about your retirement plans, albeit small compared to this, speak to a specialist at Origen.

The bigger question: if you delay the purchase of your pension annuity might your pension fund grow sufficiently to produce a greater annuity income over time?

Example Mr. and Mrs. A. are in their mid 50s and planning to retire in the fairly near future. However, recent economic events have impacted greatly on their chances of providing themselves with the retirement income that they need. What factors should they consider when it comes to planning for their retirement?

On a general basis it would make sense to try and reduce the investment risk within their pension fund as they approach retirement. They need to be as sure as possible of the retirement income they might get. If the value of their pension fund falls dramatically before their intended retirement date, it might mean that they might either not be able to generate the income in retirement they would like and they might not have the time to remain invested long enough to try and recover the losses in their pension arrangements.

It is pretty impossible to offer definitive advice because of the various individual factors such as the size of the pension fund, other assets, the possibility of ill health, and the attitude to risk.

But if they have enough liquid assets, it might be a good idea to pay more into the pension arrangements because they would receive a further 20% on the contribution via basic rate tax relief and, with a further 20% if a higher rate tax payer.

The likelihood is that interest rates will come down even further, impacting on the pension annuity rates that might be available in the future. Naturally, taking example annuity quotes might help paint a picture, but it is the value of the pension fund that will really make a difference.

Let’s look at a pension fund of £100,000 that might generate an annuity income of around £5,000 a year. If a deferred annuity purchase is delayed for two years then £10,000 gross income that could have been taken is not received. The question is whether the pension fund would have grown enough in those two years make an improvement on the annuity income then taken?

Perhaps a year or so ago a fund in the safest environment possible might grow by 5% gross a year – in some sort of cash/deposit fund. On a fund of £100,000 this would equate to £10,000 of growth. In turn, this means that the annuity income in two years time might be £5,500 a year. Doing the (easy) sums would suggest that it could take approximately 20 years to replace the £10,000 of income that could have been received during the first two years. Is it worth it?

Delaying an annuity purchase is not an easy decision to take, though maybe easier if you have a large pension fund, other sources of income, and advice should be taken from the likes of Origen before taking this route.

Pensions are becoming more flexible these days in terms of how you can take your benefits. There are a whole host of pension options to consider when planning your retirement income. It’s not just about annuities any more.

With lower gilt yields being experienced HM Revenue & Customs (HMRC) have been prompted to reissue tables used for calculating maximum annual withdrawals from income drawdown plans.

Current tables show a range of gilt yields from 3-8%. For adults, a 15 year gilt yield is used, and for February 2009 this is 3.75%, having fallen from 4.75% in January last year.

These yields are used to determine the maximum annual withdrawal that is permitted  from an income drawdown plan. At last January’s adult gilt yield of 4.75%, a 60 year old man with a £100,000 pension fund could take an income of around £7,800. Today, a 60 year old man with a £100,000 pension fund is more likely to receive an income closer to £7,080.

What all this means for you is that lower maximum incomes can now be taken from income drawdown plans than previously the case, meaning that annuity quotes should be considered again. Perhaps the best annuity rates on offer is a better solution.

Rates are also provided for dependants under 23 who inherit an income drawdown fund and, due to the shorter expected nature of dependants’ pensions for children, the yield used is a five year gilt yield.

The move by HMRC comes as increasing numbers of retirees make use of flexible income drawdown products to bolster their retirement income amid the climate of lower gilt yields, according to leading pension and annuity provider, Standard Life.

John Lawson, their head of pensions policy, stated that people looking to obtain higher levels of retirement income should consider flexible ‘drip-feed’ drawdown, where the income is taken as a combination of tax-free cash and taxable income.

If you are considering something as complex as this use a specialist such as Origen to guide you through the detail.