DIY Investor Magazine
/
March 2014
16
THE DOZEN WORDS
James Baxter
Managing Partner Tideway Investment Partners
George Osborne’s budget bombshell shocked the
pensions industry, handing more control over to
pension savers and removing the need to buy an
annuity. Before the speech was even finished 50%
had been knocked off the value of two of the UK’s
listed specialist annuity providers.
Regulatory pressures on insurance companies,
increased longevity and historically low interest rates
have all combined to make annuities an extremely
expensive product. They were never that popular and
already looked inflexible and outdated as the way to
deal with modern retirement.
The rule changes made draw down significantly more
attractive and the endorsement of drawdown and
simultaneous slur on annuities has meant that all
pension savers will now want to consider this option.
Buying an annuity in future will be for a small minority
of investors who really value the guarantees they
offer and don’t mind the significant costs to get those
guarantees. The majority will likely want to exploit the
new rules and treat their pension savings like the rest of
their money in ISAs and general investment accounts,
holding their own risks, investing sensibly and spending
it as needed.
So as the new rules come in the two key challenges
facing those retiring will be:
1.
How to make the best use of each of the various tax
wrappers and tax allowances to minimise the tax on
savings and investment profits?
2. How to invest sensibly, what for most will be
irreplaceable capital, to generate steady income
and protect this against the long term impact of
inflation.
On the first point we are now advising our clients to
withdraw from their pensions the most tax efficient
withdrawals, rather than simply what they need to
spend.
Pension accounts are very tax efficient in accumulation
mode, but less so in de accumulation and are beaten
hands down by ISAs and in many cases simply holding
the investments directly.
“LET ME BE CLEAR. NO ONE WILL HAVE TO BUY AN ANNUITY.” GEORGE OSBORNE
2014 BUDGET SPEECH
THAT CHANGED THE PENSIONS
WORLD FOREVER
