Today is Pension Awareness Day, so Martin was a guest on Share Radio earlier this week to chat about some topical pensions issues.
Pensions Awareness Day was first launched in 2014 and aims to alert the nation that it is not saving enough.
Martin was interviewed by Ed Bowsher for Pensions Awareness Day and was asked various question about pension and retirement options.
Martin was first asked whether people should buy an annuity.
“It used to be the case that annuities would be the default pension income option for most people”
“However, these days with low guilt yields and falling annuity rates and we are all living a lot longer as well.
“Those pension freedoms introduced last April mean that for most people now, annuity is probably not the default option and its not the automatic way to go.”
Discussing the alternatives to annuities:
“Well the main alternative now is pension drawdown and of course since the pension freedoms we’ve got no real limits on that anymore so you can take money out of your private pension pot now to the amount you need to each year.
“You have to think very carefully about sustainability when you do that. How much can you withdraw from your pension pot each year without really running the big risk of running out of money before the end of your life time?”
When suggesting taking your whole pension pot out in one go:
” You’ve got the freedom to take all of the money out of your pension pot, a quarter of it is tax free.
“The other three quarters, that’s where it will really hit you because you’re going to get subject to income tax.”
When asked how much money you would get back when you sell an annuity back to a pension provider, once the new secondary annuity market is launched:
“Well realistically not very much. Now we’ve got to wait until next April before the launch of this proposed secondary annuity market, where people will buy your annuity back from you.
“Providers will buy your annuities back from you, give you a cash sum in return.
“I suspect that is definitely going to be bad value for most people who consider it. Annuity rates are low, the companies buying annuities back are going to be offering fairly mislay rates for doing so.”
“I think that secondary annuity market, its an extension, a natural extension of the pension freedoms we saw introduced last April. I don’t think its going to be particularly popular.”
Ed finished by asking Martin if he was worried that some final salary pensions won’t live up to the promises they’ve made in the past?
“Well we in that final salary pension sector defined benefit pensions sector, there is a huge pension deficit at the moment, it is being made even larger as a result of falling gilt yields.
“So the gap between what the companies are promised and what they are able to fund with the assets of the scheme.
“I think the figures I saw most recently for FTSE 100 companies alone, the total pension deficit right now is £52 Billion and it’s rising all the time.”
Martin also pointed out that members of final salary pension schemes receive protection form the Pension Protection Fund.
If you have any questions about pensions on Pension Awareness Day, do get in touch and we will be happy to answer your queries.