This is a very high risk area for advisers and until recently there hasn't even been a specialist examination available to ensure that brokers have the necessary knowledge to conduct an analysis. QUOTE]
Hi Marc,
Thanks for your reply. Alas, I think you have confirmed my suspicions! (Many) advisers are insufficiently qualified to compare A with B, (just 2 options……aaaggh) so hey, they'll sell A.......
no one ever gets fired for selling IBM and all that! Or they'll sell B and have an 'oul annuity quote on file. Not encouraging....
What has the industry done to improve outcomes for retirees? International evidence suggests that buying an annuity at the point of retirement is inefficient*. (There are strong arguments for buying a deferred annuity but such products are not even available in Ireland - an example of my suspicion that the market is under-developed here.) In simple terms, for those who retain ownership and responsibility for one's fund, the safe withdrawal rate in the US has long-time been seen as 4%, satisfying very rigorous back-testing. That said, many commentators now believe that this should be reduced to c. 3% to ensure safe future outcomes in anticipation of a combination of lower future equity and bond returns.
My sense is that Irish retirees are being very badly served by the industry. For example, the Society of Actuaries in November 2015 produced a 50 page analysis of the ARFs and annuities and in spite of having multiple pages of recommendations didn't even call for a change in the imputed distribution rates (4% before 70, 5% thereafter - their only recommendation being to remove the 6% rate in respect of funds over €2m!). The current imputed distribution requirements are simply nonsensical but will obviously continue when no one seems to be telling the Minister that they are nuts! Again, would be delighted to be proven wrong here!
*If we take the annuity example that I quoted in my earlier thread (taken this morning from the Irish Life site), and say that instead of taking an annuity, the couple withdraw the equivalent of the annuity amount each year and that for consistency that the amount withdrawn increases by 2% each year. Let's say that the couple get a 2% return on their fund, i.e. matching the annual inflation - in simple terms giving them a 0% real long-term return. In this scenario, their ARF would last almost 59 years (assuming uniform returns) and would provide value to the estate upon earlier death, whereby the earlier the (second) death the higher the residual value, etc.
The industry needs to get its act together. A couple with €600k in their retirement fund getting €10k a year in annuity income is simply not a good enough outcome. I know that some people will still go with the annuity approach but there must be better solutions available to the majority between the overly conservative 1.7% on the one hand and the 4%/5%
forced withdrawals on the other.