Annuities BOI

C

Cinnamonjam

Registered User
Messages
9
Hoping someone can help me understand this....

My father's pension is due to mature soon with BOI. It's worth 50k. He can take 25% or 12.50k as a lump sum. On the remaining 37.50k, he's been offered annuity or amrf. The annuity option looks like a complete and utter scam. They're offering 112/mth. So to see the 37.50k back, he'd have to live to 93. And they'll only pay to dependents for 10 years. I don't really understand the other option. Its basically another fund, so the returns are uncertain, but if it's anything like the annuity option, I'd assume it will also pocket a large chunk of the fund.

So, that leaves me thinking, why am I paying into a pension myself? If this is what the 'benefits' are, then maybe I should just bank the money or buy a second property. I know the tax relief is good when paying in, but won't I be taxed on anything I take out after the lump sum anyway ? And if I buy something tangible like a house with my extra cash, at least my kids can inherit that. Any thoughts from people wiser on the subject?
 
Ya Annuities are very low 3.5% seems standard.

The AMRF is tied up until 75, so is there any option to draw down the fund in full under the trivial rules.
 
Cinnamonjam said:
So, that leaves me thinking, why am I paying into a pension myself? If this is what the 'benefits' are, then maybe I should just bank the money or buy a second property. I know the tax relief is good when paying in, but won't I be taxed on anything I take out after the lump sum anyway ? And if I buy something tangible like a house with my extra cash, at least my kids can inherit that. Any thoughts from people wiser on the subject?
Click to expand...
Hi Cinnamonjam,

I think this is the crux of you post and if so, there are loads of similar discussions on the forum here about the pros and cons of personal pension provision. Have a scan around and read them. This sticky in particular might address some of the questions you have: https://www.askaboutmoney.com/threads/should-i-just-save-money-or-contribute-to-a-pension.170752/
Then I'd come back here and ask specific questions as they relate to your own circumstances.
 
Shop around - your father is not obliged to take an annuity with BOI and he might get perhaps a (slightly!!) better rate somewhere else.

For your situatuion: I would continue to save into a pension - annuities vary as well over time. So in the past you would get more for your final pot than now depending on the situation of the market.
Don't forget there will be as well inheritence tax on a second house and also that the housing market crashed as well once and is likely to do so again at some point in the future.
 
Does anyone have an updated link to the article on that thread? It points to a list of info leaflets now.

I suppose my first question is: Are annuities generally this bad?

And my second is: Is the arf option any better or would you also have to live to 90+, just to get the value of what's in the fund.

And my 3rd (on a slightly more philosophical note): Is there any regulation in the industry and if so, has it ever sought to address the exploitative annuity rates that the banks/pension funds are offerin? Can I expect it to be any better by the time I get to 65?

My father turns 65 in June. So, he's beino forced to make a choice by then.
 
How are they exploitative?

Current annuity rates are simply a function of the current investment environment, which is unusual to say the least.
 
At the rate offered, he'd have to live to 90 just to get back what's in the fund currently.

The way I see it, that's well over the average lifespan, so BOI pocket the balance?

Is there something that I'm missing? There's no mention of the monthly payment increasing over time. How is it market linked?
 
Ok...so a quick calc on the arf option. Suppose I have a fund worth 200k at retirement. I can withdraw about 10k a year tax free i.e. without paying income tax. So, to get the value out tax free, I have to live to 85. Is that a fair rough calc? Otherwise, I pay tax and so lose the tax benefit I got when I paid in as a younger person.
 
In regards to the tax benefit: first the amount in your pension fund grew tax free - secondly you might have paid the higher tax rate 9and got the credit for that) when you paid into the pension - the payout often will be though at the lower tax rate.
 
Cinnamonjam said:
Hoping someone can help me understand this....

My father's pension is due to mature soon with BOI. It's worth 50k. He can take 25% or 12.50k as a lump sum. On the remaining 37.50k, he's been offered annuity or amrf. The annuity option looks like a complete and utter scam. They're offering 112/mth. So to see the 37.50k back, he'd have to live to 93. And they'll only pay to dependents for 10 years. I don't really understand the other option. Its basically another fund, so the returns are uncertain, but if it's anything like the annuity option, I'd assume it will also pocket a large chunk of the fund.

So, that leaves me thinking, why am I paying into a pension myself? If this is what the 'benefits' are, then maybe I should just bank the money or buy a second property. I know the tax relief is good when paying in, but won't I be taxed on anything I take out after the lump sum anyway ? And if I buy something tangible like a house with my extra cash, at least my kids can inherit that. Any thoughts from people wiser on the subject?
Click to expand...

Annuity rates currently offer a very poor return but to say they are an utter scam is just wrong. When setting the rates the actuary has to take into account current mortality rates and long term bond yields. With people living longer and bond yields at zero, there is no return on putting your money into an annuity, meaning what you get is very little. If bond yields were higher, you'd get more. It's the same as putting the money on deposit at current rates and trying to make it last the rest of your life. How much do you think you could take out? Also remember, if your dad lives to be 100, he will still get paid.

If you buy a house, it will be from after tax income and you will have to pay income tax, usc and prsi on rental income. It is likely to cost you money for decades.

You can get a huge amount of diversification from investing in pensions. I own stock all over the world that I couldn't possibly get on my own. When Star Wars comes out in December, the Disney stock I own in my pension will jump not only due to the massive ticket sales but also all the merchandise they will sell at premium prices. Hopefully lots of people will use their Visa credit card to make those purchases so the stock I own in them through my pension will also increase in value.

And if I happen to die early, the fund will go to my family. If you died early, the debt on your investment property will go to yours...


Steven
[broken link removed]
 
Is there a chance that the annuity rates are rising in the near future? Are they linked to the interest rates of the european Central Bank?
 
You must log in or register to reply here.
Back
Top