Monthly Archives: December 2010

The Treasury announced new rule changes for 2011 that affects income drawdown and pension annuities and effectively ends the compulsory annuity purchase at age 75. Here at Retirement Solutions we have produced a quick guide to explain the new rule changes. The Free Guide to rule changes for pension annuity and income drawdown is available for download here.

The free guide covers changes to the annuitisation rules for pension annuity purchase at age 75 as well as the new Capped Drawdown that replaces unsecured pension, in addition to the new Flexible Drawdown. Also covered are the changes to the death benefits from April 2011.

These retirement products are complicated and we here at retirementsolutions.co.uk suggest very strongly that you seek independent financial advice before entering into any agreement.

Here at Retirement Solutions we have specialised advisers that are qualified and trained to deal with long term care funding. To help those in the early stages of research we have written a long term care guide that explains about some of the ways that care fees can be funded.

Long term care guide contents

The long term care guide contents include long term care annuities and equity release including advantages and disadvantages of each. Here at Retirement Solutions we believe everyone looking for advice on long term care should seek indpendent financial advice. The Free Guide to Long Term Care is available as a free download.

As part of our commitment to providing valuable content to our website visitors we have just produced a downloadable free guide to equity release. The free guide to equity release covers the two main equity release products, lifetime mortgages and home reversion schemes as well as giving advantages and disadvantages of equity release.

There is also a section on Interest Only Equity Release Mortgages which are very popular with those retirees that have good levels of income.

The free guide to equity release can be found here – Equity Release Guide

This month we see a second consecutive increase in the GAD, Government Actuaries Department rate. The rate increases from 3.75% to 4.00% for income drawdown plans.

Therefore the GAD calculations with a £100,000 fund will be:

Male, 60 [100% GAD = £6,000], [Max income (120% GAD) = £7,200]
Male, 65 [100% GAD = £6,800], [Max income (120% GAD) = £8,160]
Female, 60 [100% GAD = £5,700], [Max income (120% GAD) = £6,840]
Female, 65 [100% GAD = £6,300], [Max income (120% GAD) = £7,560]

The rates above are for the current income drawdown plans that will be replaced in April 2011 by ‘Capped Drawdown’ and ‘Flexible Drawdown’, which although the maximum income will be reduced to 100% from 120% of the GAD rate, will give more flexible retirement options and in particular not having to annuitise at age 75.

Whilst the ability to take up to 120% of the GAD rate seems a great idea to maximise income it does deplete the remaining fund very quickly especially in time s of poor investment performance.

On 9th December The HM Treasury announced its judgement on the rules for retirement income with effect from 6 April 2011. Here at Retirement Solutions we would like to point out the rules for those clients that are already in income drawdown and how they will be affected.

Existing arrangements will come under the new regime with effect from the 6th April 2011.

The impact of the new ‘Capped Drawdown’ limits will affect existing arrangements in different ways depending upon when 75th birthday falls, so if it falls:

On or after the 6th April 2011, the new limits apply from the start of their next reference period to begin on or after that date;

Before 6th April 2011, from the start of the drawdown pension year in which the 6th April falls. Except for those who Between 22nd June 2010 and 5th April 2011, the changes will have effect from the start of their next drawdown pension year to begin on or after 6th April 2011.

What you cannot do!

• Have a flexible income drawdown and continue to get tax relief on pension contributions.
• Claim tax relief on contributions made after your 75th Birthday.
Source: The Retirement Partnership

We urge all those customers that are in income drawdown to read up on the new rules and where necessary contact us for a review.

Enhanced annuities are, essentially, annuities that pay out a higher rate based on health conditions and/or certain lifestyle habits. This is because there are a number of medical conditions or habits that could lower your life expectancy and the rate at which your annuity pays out is based largely on how long you’re likely to live.

But what could qualify you for enhanced annuities?

Smoking

If you have smoked for ten years or more (and have smoked at least 10 cigarettes a day for this period) then this could mean you qualify for a smoker’s annuity or enhanced annuity. This is, of course, because smoking causes a number of life threatening illnesses including several cancers, heart disease and emphysema.

Your Postcode

Some specialist enhanced annuity providers even take where you are from into consideration for enhanced annuities. This relates to the fact that people living in certain areas of the UK, often the poorest areas, have lower (significantly lower in some cases) life expectancies than those from other areas.

Alcohol Consumption

If you regularly exceed the recommended daily maximum number of alcohol units, again you may qualify for these enhanced rates. This relates to the fact that doing so again contributes to a number of health conditions, including heart disease and high blood pressure, which again could mean you have a lower life expectancy.

Illnesses

There are quite literally thousands of illnesses that could qualify you for an enhanced annuity. While severe illnesses including life threatening cancers are included, an illness does not necessarily to need to impair your quality of life or be terminal to mean you qualify. If you have any pre-existing medical conditions or even have previously suffered any, it’s worth enquiring as to your eligibility.

If you are retired and looking for an interest only mortgage then the Halifax Equity Release plan could be a perfect solution for you. The Halifax Equity Release scheme is a qualifying lifetime mortgage and not sold direct to the public by the Halifax branch network.

What are the Halifax Equity Release qualifying rules?

To qualify for the Halifax Equity Release plan you need to be retired and over age 65. There may be an allowance for those younger than age 65 and retired provided your income is not from earned income from employment or self-employment. The minimum loan is £15,000

Halifax Equity Release Calculator

You can use the Halifax Equity Release Calculator here

With the Treasury announcing the new rules for drawdown this week, here at Retirement Solutions we would like to remind you that drawdown is not for everyone and it is vital to take advantage of the new rules. The Treaury announced a ‘Capped Drawdown’ to replace unsecured pension and ‘Flexible Drawdown’ for those that can show a minimum earnings level of over £20,000 per annum.

The two schemes come into force from 6 April 2011 although the majority of insurance companies and specialist pension providers have indicated that it is unlikely that they will have schemes and systems in place by then.

The Capped Drawdown will have the cap at 100% of the government actuaries department (GAD) rate, this is a change from the current 120% which has been criticised for reducing pension funds too quickly for those that chose the level. As with unsecured pension there is no requirement to take income if it is not required.

A significant change with the two new schemes is that on death the lump sum death benefits will be subject to an increased charge from the current 35% to 55%

Flexible drawdown will allow unlimited withdrawal from the pension provided that the minimum income requirement of £20,000 is met.

As independent financial advisers we would always recommend taking advice before committing to any scheme.

The Treasury has set the flexible drawdown minimum income requirement at £20,000. This is part of the end to compulsory annuitisation that the government announced in July this year. The new minimum income requirement will go ahead from April 2011.

As part of the removal of compulsory annuitisation the government has also today published details of the changes it intends to introduce to remove the effective requirement to annuities by age 75 from 6 April 2011.

Recent research by Prudential indicates that many retirees are not making provision in their annuity for their partner. Many annuity contracts default to single life and especially those that have guaranteed annuity rates.

More than half of  adults aged 40-plus and who are not yet retired are at risk of losing all or part of their private pension income if one partner dies because they are failing to make any pension provision for each other, research from Prudential shows.

Prudential has launched an online guide for couples at www.pru.co.uk/couplesconversations which provides a decade by decade countdown on the financial issues they may need to tackle.

Vince Smith-Hughes from Prudential said, “You can choose a joint life annuity which will pay an income to a spouse or dependent after your death and alternatively or as well as you can purchase a guarantee that the income will continue for a set period up to 10 years after the death of an annuitant.

We asked independent financial adviser (IFA) Adam benson to comment on the research by Prudential, Adam said, “When dealing with married couples as an IFA I always recommend that couples protect each other financially where they can. Quite often people go for the larger income on single annuities, which is often the default option,  forgetting about their partner. This is why it is important to get independent financial advice, an adviser will always make a recomendation to protect the partner in the event of death, and of course we never know which will die first”.