To previous site visitors, welcome back. To new site visitors, welcome. Over the past few weeks a great deal of work has been done on this website, including changing the strategic partner from Bank of Scotland Annuity Service to Origen Financial Services Ltd. Why? To offer you, the consumer, greater information and choice for your retirement planning needs.

Previously you could only access pension annuities through this website. Now, in addition, you can access information and advice on self invested personal pensions (sipps), income drawdown, phased drawdown, pension fund management, inheritance tax planning, and a whole lot more. There is a mountain of information to help you decide which route you should go down, backed up by Origen’s whole of market national presence. You can even get to see someone if you wish.

Take a good look at what is on offer, and be confident that we can really help you.

What do you do if the value of your pension fund has fallen and you want to retire?

We know that investments have fallen significantly this year, and that, given time, things will recover. However, for many, waiting for recovery is not an option. This is probably one of the reasons behind the large reduction in people choosing to purchase a pension annuity at this point.

The retirees most at risk are those who had their pension funds invested in what are termed insurance company managed funds. These have a number of different investments such as property, gilts and equities. Historically they had a large proportion tied up in equities, which have seen a dramatic fall.

An option available is to consider deferring your pension annuity purchase and use other assets as a source of replacement income. Typically from monies on deposit. 

Another option would be to consider income drawdown rather than taking an annuity income straight away. This effectively means that your fund remains invested but you have access to your tax free cash entitlement and a regular income (which is ‘drawndown’ from the pension fund). By remaining invested there is a chance that over time, as investments recover, you may then be in a position to consider locking into an annuity rate.

There are no guarantees that this will happen in the short term, and you need to balance the fact that even if your pension fund grows, your income could be reduced by falling annuity rates. This is possible in the short term with falling interest rates, but, as you get older, you get better annuity rates.

You could consider an investment linked annuity. Middle ground, they allow investors to lock into current annuity rates on offer whilst at the same time, see their future income improve as investments generally recover (hopefully).

In view of the global economic downturn and financial crisis, Equitable Life has put the sale of its  with-profits fund on hold. According to press reports, Equitable Life, which has 500,000 investors and pension scheme members, has received several approaches from other insurers to buy its assets. They now plan to put the fund into ‘run-off’, so that it can continue to run policies until maturity.

Equitable was open to offers to purchase its’ assets from the beginning of 2008, following the transfer of £1.7 bn of its with-profits annuity book to Prudential in 2007 and the transfer of £4.6 bn in pension annuities to Canada Life in 2006.

The chairman, Vanni Treves, has stated that, after carrying out this important test of our options for improving prospects for policyholders, they will now focus on a stable and secure run-off of the company.

Here we look at the issues retirees face when tackling the impact of inflation on their pension annuity income. First, these Individuals have to strike a balance between competing factors when converting a pension into an annuity income stream. One hot topic is inflation. Inflation of just 4% will halve the value of a level annuity income in less than 17 years, a shorter period than the average retirement.

The problem is that there are so many factors: annuity rates, investment returns, an individual retiree’s future health or life expectancy, as well as the likely effect of inflation.

Taking care of Inflation is also clearly not top priority for the majority of retirees. In 2006, 87% of the 350,000 pension annuity contracts sold paid a level income for life, just 6% included escalation, with the remainder made up of impaired annuities, enhanced annuities and investment-linked contracts.

The cost of inflation-proofing is one stumbling block. A 65-year-old, non-smoking man investing a £100,000 pension pot in a single-life pension annuity guaranteed for 10 years could receive a level income of £7,692 a year from the best paying lifetime annuity provider. This is a significant £3,012 a year more than the retail price index (RPI)-linked equivalent (£4,680) starting annuity income.

An option is fixed escalation, either through a conventional lifetime annuity that pays out for life, or a fixed-rate annuity that pays a secure income for a fixed period, then matures, allowing the retiree to rethink their financial strategy according to circumstances. The 65-year-old man above could receive a starting income of £5,664 from the ‘best buy’ lifetime annuity which, rising at a fixed 3% a year, would exceed the level annuity annual income in year 12 and the overall income by year 21.

There are other options for wealthier and more financially sophisticated retirees. We have income drawdown or with-profits annuities which effectively keep funds invested in a range of assets. The hope is that positive investment performance will outweigh any negative effects from inflation.

The conclusion to this is that hedging pension income fully or even partly against inflation either means higher costs or risks, and possibly a combination of the two. Wealthier people may be alright with this, but the majority might not.

The majority of annuity purchasers still fail to exercise their open market option to shop around for the best annuity rates for their circumstances. They also lock into ‘healthy lives’ annuity rates, just at a time when the chances of succumbing to ill health are starting to increase. Even though retirement is getting longer, we are actually spending a greater proportion of those years in poor health.

If you do buy a conventional annuity you lose any income flexibility compared to unsecured pension products like income drawdown or fixed term annuities that allow you to tailor your income to meet your changing needs and state of health over the years.

If inflation falls and annuity rates start to fall back, those retirees who wait could be faced with the prospect of a lower retirement income. But, waiting before committing to an annuity could mean a  potential benefit from being able to respond to changing individual circumstances - for example, through becoming eligible for higher impaired annuity rates, future product innovation, legislative changes, or being able to extend death benefits for longer. 

Britain’s oldest insurance company, which was founded in 1762, made a great play of the fact it paid no commission to independent financial advisers (IFAs). It did, however, pay it’s own salesmen  bonuses, and it regularly used Department of Trade statistics in its advertisements to show that it had the lowest cost to sales ratio of any insurer. It therefore attracted a great deal of business from a great number of people. I remember those days vividly.

For many years, Equitable did better than its’ competitors by distributing more of the investment returns from its with-profits fund to policyholders. While boring rivals held back some returns in good years to boost payouts in bad times, Equitable made a virtue of throwing the cash back, and not ’saving for a rainy day’. Many upmarket clientele involved themselves with Equitable; they felt they had no need to talk to an IFA.

Basically, Equitable had an over-promised fund. Beneath the surface, this fabulous ocean liner was fatally flawed. One major point of concern (later) was that it sold pension savings plans with guaranteed annuity rates (GAR’s) promising savers double digit annuity incomes when they retired. As interest rates elsewhere fell, these GAR’s looked very attractive, but it is these that became ruinously expensive for Equitable to deliver.

They had a brilliant idea (!!) to punish policyholders who insisted on receiving their GAR’s by giving thema cut in with-profits payouts. Naturally, the press cried “foul”. The insurer responded that it would see anybody who disagreed in court. Then it produced an infamous letter to policyholders, urging them to “ignore misleading press comment”.

It all went horribly wrong. Equitable Life could not afford to deliver on their promises. Eight years later, an estimated 30,000 Equitable savers have died waiting for redress. In July, Ann Abraham, the Parliamentary Ombudsman delivered a 2,819 page report: “Equitable Life – a decade of regulatory failure”. All involved paries were blamed, the government, the Department of Trade, and the Financial Services Authority, and compensation was deemed to be due to those effected.

Apparently, there is a wicked Westminster whisper that Mr Darling plans to use his Pre-Budget Report  to claim he cannot help the Equitable victims because he doesn’t now have the money. Surely, this cannot be right. Mr. Darling needs to help out these Equitable victims.